By David Milliken and William Schomberg
LONDON (Reuters) -Bank of England Governor Andrew Bailey said on Tuesday he did not agree with finance minister Rachel Reeves’ description of regulation as a “boot on the neck of businesses” and he defended rules for the banking sector which are overseen by the BoE.
Bailey told lawmakers that the central bank was open to making changes to the detail of post-financial crisis financial regulation – such as income thresholds for approving mortgages – to help the government’s economic growth push.
But he favoured keeping rules on banks in areas such as ring-fencing – which separates banks’ consumer lending operations from their more volatile investment banking – and said Britain was not imposing tougher regulation than elsewhere.
“I do think that the ring-fencing regime is an important part of the structure of the banking system,” he said, noting the rules made it easier to deal with troubled banks.
Reeves last week promised “meaningful reform” of the ring-fencing rules as she seeks to speed up Britain’s sluggish economy, something sought by the leaders of several major banks who say the rules are a drag on credit.
Asked by a lawmaker about Reeves’ describing regulation as a “boot on the neck” of businesses, Bailey said: “I don’t use those terms. Let me say that … it’s not a term I use” before adding: “We can’t compromise on basic financial stability. That would be my overall message.”
Bailey was speaking to the House of Commons’ Treasury Committee alongside two other members of the BoE’s Financial Policy Committee, Randall Kroszner and Carolyn Wilkins.
Kroszner, a former U.S. Federal Reserve official, said he saw no specific clash at this stage between financial stability and the relaxation of regulations planned by Reeves.
“But always the devil is in the detail,” Kroszner said.
UNFORESEEN CONSEQUENCES
Bailey also sounded worried about the possibility of the government forcing pension funds to make illiquid investments such as in infrastructure assets to help boost Britain’s economy.
“I do think that it’s important that we let investment markets work. I do think that mandating could have unforeseen consequences, which do make me nervous,” he said.
“However … if, as I hope, we go down this road of pension reform, and it doesn’t happen, then I think there is a very strong ‘moral suasion’ point on industry to do this.”
Reeves said in her Mansion House speech last week that she was confident she would not need to use new powers to force funds to invest in a wider range of assets but she said the new pension bill reserved that right.
Bailey also told the committee that a rise in British government borrowing costs – especially for long-dated bonds – was not out of line with increases in other countries.
“We have seen steepening of yield curves going on now,” Bailey told the Treasury Committee.
“I think the important thing to say is that is a global phenomenon. It’s not in any sense unique to this country. In fact, the pattern in this country is not in any sense out of line with what we’ve seen in other markets, and we’ve seen steeper increases in some other markets.”
Rising borrowing costs were being driven by concerns about the impact on global trade from tariff policy decisions and uncertainty about the scale of future public borrowing, he said.
U.S. President Donald Trump has imposed tariffs on imports of many goods and has also won approval in Congress for tax cuts that are forecast to push up U.S. public debt.
(Reporting by David Milliken, Suban Abdulla and Sam TabahritiWriting by William Schomberg; Editing by Susan Fenton and Hugh Lawson)
