Bank told to review cost of financial regulation

Chancellor George Osborne
Chancellor George Osborne
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The Bank of England will study the cumulative economic costs of financial regulations introduced since the global financial crisis, after the government told it to help promote competition and investment.

Britain spent billions bailing out failing banks in 2008 and 2009. Despite continued public anger over the role of the banks in that crisis, however, Chancellor George Osborne has signalled the Conservative government wants to move on since winning re-election in May.

Osborne has cut a tax targeting the largest banks and sped up the sale of public stakes in Lloyds and RBS.

Last month he also tweaked the remit of the BoE body which looks for risks to financial stability to ensure it also took account of the need to boost investment and for more competition in the financial sector.

In his first formal response to the new remit for the BoE’s Financial Policy Committee, governor Mark Carney welcomed how financial stability remained its main goal and said the FPC would examine whether some rules were counter-productive.

“The Committee will ... assess the cumulative effects of reforms to make the financial system more resilient and consider whether in aggregate they have unintended undesirable effects,” Mr Carney wrote in a public letter to Osborne.

“Where appropriate, the Committee will consider whether the improvements in resilience from those reforms could be achieved in ways that are further supportive of strong, sustained and balanced growth.”

Bankers and others including the chief executive of the government’s debt issuance agency have blamed tougher regulation for reducing liquidity in bond markets, making them more volatile.

Many rule changes since the financial crisis have still to take effect, and the BoE has said some banks remain ‘too big to fail’ and could not be wound up safely if trouble hit.

Former FPC member Robert Jenkins said existing rules would be ineffective even when fully implemented, and said they managed to be both too complex and not rigorous enough.

“I would happily trade a reduction in both regulation and regulators for an increase in capital requirements. If we resolve ‘too big to fail’ and require genuine accountability for failure, then we can and should roll back the rule book,” he said.

Mr Jenkins is now a senior fellow at Better Markets, a U.S. group which campaigns against lax regulation, and said calls for more competition often cloaked an attempt to reduce oversight.

“These are all false choices but have gained traction among policymakers subject to finance’s formidable influence,” he said.

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