The Bank of England governor has warned against ripping up regulations that have kept markets broadly stable since the financial crisis.
“There is a reaction taking place against regulation, and the responses to the global financial crisis,” Andrew Bailey said in a speech to the University of Chicago Booth School of Business in London.
He added: “We must not forget the lasting damage done by the global financial crisis. There is no trade-off between economic growth and financial stability.”
“That said, there are usually choices about how we deal with evidence of vulnerabilities. It is critical that we have and develop tools of assessment and intervention. But these interventions may not always need to be more regulation.”
The governor’s comments come after the Chancellor warned of the danger of rep tape stifling growth in the City at her keynote Mansion House speech in November.
Rachel Reeves added that regulations put in place to protect the economy after the 2008 financial crisis had “gone too far”.
Since her comments, the heads of regulators at Homes England, the Competition and Markets Authority and the Financial Ombudsman Service have announced resignations.
But the Bank governor, in his comments, quoted US economist Hyman Minsky, who said, “that as memories of crises past recede, so attitudes towards regulation change”.
The central banker pointed to the growth of large hedge and multi-manager funds, as well as large non-bank lenders, who have helped change the nature of risks across markets.
He warned these dangers include “a tendency towards increased concentration and interconnectedness” and, at the same time, an “opacity and limited visibility in certain markets”.
Bailey added: “The market looks very different to what it was only five years ago. It involves large shifts in leverage, pricing power, speed of trading and liquidity provision.
“To be clear, these changes are not inherently bad, but they could create a new set of financial stability vulnerabilities which we need to understand and monitor and adapt new tools and approaches where appropriate.”
