Easing bank regulations could spur growth, says BoE official

Sarah Breeden, Deputy Governor of the Bank of England.

The Bank of England (BoE) should look at relaxing financial regulations to boost economic growth, Deputy Governor Sarah Breeden said.

“Policymakers should take seriously any opportunities to increase the system’s contribution to growth if it can be done in a way that doesn’t undermine financial stability,” Breeden said in prepared remarks to be delivered in Washington on Thursday. The text was released early because the silent period before the BoE rate decision next week begins on Wednesday.

Her comments come ahead of Thursday’s announcement of the UK’s plans for implementing the latest global bank capital rules, measures which the industry fears will put them at a disadvantage to international rivals.

The BoE has vowed it will be “faithful” to an agreement inked by global regulators at Basel in 2017. The US, which was originally also expected to closely adhere to the 2017 package, is now changing tack and halving the capital impact for big banks, Bloomberg reported Monday. The EU’s rules already materially depart from the Basel text.

BoE officials and Chancellor Rachel Reeves will meet bosses from top UK banks to discuss the issue on Thursday.

Breeden, deputy governor for financial stability, stressed that the best way to boost growth is to ensure the banking system is resilient to shocks. However, she warned that over-regulating would result in the “stability of the graveyard” and that it was “incumbent upon us therefore to remain open to the possibility” of relaxing the rules.

“While there are clearly limits to the contribution financial regulation can make to growth, in some cases, for some services, it may be possible to make small adjustments that increase growth potential without undermining financial stability,” she said.

Changes to UK pensions rules could help lift the economy by striking a more “optimal balance between pensioner protection, economic growth and financial stability,” she said. That could “facilitate greater investment in longer-term less liquid assets.”

“There may be ways to increase the sector’s contribution to economic growth without impacts on the resilience of service provision or financial stability.”

The government wants to attract more pension fund money into UK infrastructure to deliver desperately needed investments in water, energy and green technologies. Breeden added that lending rules for small and medium-sized businesses, innovation in the money and payments system and green finance are other areas where regulation could be altered to encourage growth.

She said: “We don’t want to insure against every possible eventuality. Instead, we want to ensure resilience to severe but plausible shocks. That implies that a degree of vulnerability remains, and some disruptions can still occur. Therefore, we also have to stand ready to intervene quickly and effectively when disruptions do occur.”