TOP banking official Andrew Bailey yesterday denied claims that judgement-based regulation will lead to uncertainty and arbitrary controls in the banking sector, instead arguing it represents the best way to reduce complexity in regulations.
Regulators have faced criticism for promoting a “shoot first, ask questions later” model, as it could give excessive powers to the authorities and undermine banks’ efforts to innovate.
But Bailey – a director at the Financial Services Authority, who will sit on the Bank of England’s new Financial Policy Committee – said exercising judgement will end both the box-ticking culture among officials, and the efforts of banks to sidestep onerous rules by gaming the exact letter of regulations.
“The art of supervision is to look at a situation from several angles and seek thereby to identify weaknesses. Good supervision is about judgment,” he told an audience at a Bank of America Merrill Lynch conference.
And the top regulator also said that banks should hold more capital against unlikely but damaging events, such as a Eurozone breakup, despite worries that forcing banks to hold large amounts of capital can damage lending and so economic growth.