Andrew Bailey warns Rachel Reeves against bonfire of red tape

Telegraph

2 days ago

Andrew Bailey has warned Rachel Reeves against slashing red tape to boost growth, cautioning that looser regulation will increase the risk of a crisis.
The Bank of England Governor was asked by MPs on Tuesday if he agreed with the Chancellor's recent claim that regulation is 'the boot on the neck' of business.
'I do not use those terms,' he said. 'There are areas where we clearly should look at [revising regulations]. But we cannot compromise on basic financial stability, that would be my overall message.'
His comments come a week after Ms Reeves announced a roll-back of regulation in the City in an effort to boost growth. The Chancellor used her Mansion House speech to urge financiers to ditch their 'excessive caution' and called for regulators covering industries beyond the City to loosen the rules to aid the economy.
Mr Bailey hailed the opportunity to ditch EU red tape that was not designed to suit Britain's market, but said Ms Reeves should be wary of going too far. He told the Treasury select committee: 'When I hear people say, 'The financial crisis is now way in the past, we've got passed that, that's all solved, that's all out of the way, move on' ... For those of us who were veterans of sorting the problems of that out, I think we probably all feel in some ways ... erm ... no.
'Yes of course the world moves on ... [But] we had a very serious recession in this country after [the financial crisis]. So I do react to people who say that.'
He added: 'Success in financial stability is when nothing happens. The fact we've had market volatility this year and we haven't had a financial stability problem and we're not worrying about banks failing ... is of course a success.
'It's not always easy to point to it and say, look, this is good news. But the UK banking system is very resilient.'
Relaxing ring-fencing rules
Mr Bailey specifically warned Ms Reeves against relaxing so-called ring-fencing rules, which divide retail banking from the racier world of investment banking.
The Chancellor last week announced the ring-fencing regime would be 'reformed' as part of her overhaul. She has instructed the economic secretary to the Treasury to review the policies, 'looking at how changes can strike the right balance between growth and stability'.
However, Mr Bailey said: 'The ring-fencing regime is an important part of the structure of the banking system.
'It makes resolution of banks, if they get into trouble, much easier, and it benefits, particularly in terms of UK customers and UK consumers, businesses and households. That is a helpful feature of it, I don't think it hinders banks fundamentally.
'It has established itself as part of the system and to me it would not be sensible to take it away at this point.'
Risks are growing in financial markets, the Governor added, with heavy government borrowing in the UK and around the world driving up debt interest costs. High prices in stock markets also pose dangers, he said.
He sounded the alarm over American tech stocks, singling out the soaring valuation of chip company Nvidia as a sign of the extent of market enthusiasm.
'In the US, it is a very strong tech-led growth story. The market capitalisation of Nvidia is now larger than the UK's GDP,' said the Governor. 'It is up 20pc this year. That is a pretty striking fact. It is 7pc of the overall market capitalisation in the US.'
While Mr Bailey warned Ms Reeves not to go too far on City reforms, he said allowing banks to make more loans worth over four and a half times the income of homebuyers could help tens of thousands first time buyers onto the property ladder.
He urged more banks to apply for permission to dish out larger mortgages. He said: 'It is very simple. We have changed the policy overnight. All you need to do is send us an email, ask for what we call a modification by waiver, it is yours.'
The Governor said one bank has already obtained that permission, with another going through the process.