Excessive regulation may have stunted credit, says Bank official
REGULATORS may have thwarted the supply of credit to the economy by reacting too sharply in the wake of the financial crisis, a senior Bank of England official said yesterday.
Alastair Clark, who sits on the Bank’s new super-regulator, the Financial Policy Committee (FPC), said that there was a danger in strangling the sector with excessive caution.
“My own view is that, in our international regulatory initiatives, we may inadvertently have ended up front-loading the regulatory response more than was intended,” Clark told a group of business economists in London.
He said that authorities are aware of the risk of regulators erring “on the side of excessive caution”.
Clark pointed out that the FPC has been tasked with acting in a way that does not have “a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy”.
The FPC is in the process of deciding which powers it should be able to impose on financial sector companies; its recommendations will need to be passed in Westminster, yet it will also be able to issue instructions to other new regulators.
Clark warned that there is “relatively little empirical evidence” on the effect that many of the suggested tools could have on financial stability, admitting that he is sceptical of some quantitative analyses of how they might work.