Deregulation drive risks repeat of financial crisis, Bank of England governor says
The governor of the Bank of England has distanced himself from Chancellor Rachel Reeves’ deregulation agenda, suggesting the move could cause a repeat of the 2008 financial crisis.
Andrew Bailey told MPs on the Treasury Committee that the UK “cannot compromise” on financial stability after the government laid out plans to remove regulatory red tape across the financial sector in a bid to boost economic growth.
“There isn’t a trade off between financial stability and growth,” he told the Committee.
The governor was being questioned by the cross-party group of MPs, along with two external members of the Financial Policy Committee, following the release of the BoE’s Financial Stability Report.
Reeves used her speech at last week’s Mansion House dinner to announce sweeping reforms across the sector, telling City bosses in attendance that too often regulation is a “boot on the neck” for UK businesses.
However, Bailey refused to back the Chancellor’s analogy when probed by Committee Chair, Labour MP Dame Meg Hillier, saying, “It is not a term I use.”
The governor added veterans of the 2008 financial crisis recognised dangers the cutting of red tape for regulation could have on the sector.
“ I can understand when I hear people say the financial crisis is now way in the past…yes, of course the world moves on. But that was the experience of losing financial stability. We had a very serious recession in this country after that.”
Cutting ring fencing red tape
Bailey has previously voiced his concerns surrounding modifying the current ring fencing regime, a set of rules under which [explanation].
While Reeves’ promised meaningful reform to the current system, Bailey warned it could have a “negative effect on UK lending”.
He added such a change would do little to benefit UK lenders and consumers.
“I do think the ring-fencing regime is an important part of the structure of the banking system,” he told MPs.
“It has benefits, particularly, in terms of UK customers and UK consumers; businesses and households. I think that is a helpful feature of it. I don’t think it hinders banks fundamentally in terms of their business models.”
“Again, at the margins, I am sure there are things that can be improved and we will work constructively to go through that process.”
Carolyn Wilkins, a Canadian economist who sits on the bank’s fiscal policy committee, said the current ringfencing regime “works well”, and was “very helpful for growth”
The future of ‘Britcoin’
Despite having worked on the project to create the UK’s first digital currency for a number of years, Bailey told the committee he would “need a lot of convincing” to push through the plans, if existing projects to push digital technology into other central bank payment systems are a success.
He said he would work with banks and the UK market to develop a digital technology in commercial banking systems, adding that improving commercial systems could lead to “huge benefits” including reducing fraud and smart contracts.
He insisted he is “not saying no” to a digital pound.
Others at the Bank have adopted a more bullish tone on using the technology.
Sasha Mills, Executive director of Financial Market Infrastructure, said at the City Week conference that the Bank “is open minded to stablecoins being able to provide innovation that could also be useful for wholesale markets.”