LONDON – Britain must not be ‘short-sighted’ and copy European Union rules just to keep financial activity in London, Bank of England Executive Director for Financial Stability Alex said on Monday Brazier.
The city of London was cut adrift from the EU market on December 31 and has yet to be granted “equivalence” or market access through Brussels.
“Equivalency which means being a full rule-maker is potentially very problematic from a financial stability perspective,” Brazier told a Reuters Newsmaker forum.
These are the first comments from the BoE since Britain and the 27 EU countries agreed on a framework for informal regulatory cooperation on Friday, seen as a first step before Brussels considers access equivalence.
Trading in euro equities and derivatives worth billions of euros per day has left London for the block and Brazier said the match wouldn’t make much of a difference as it doesn’t cover a huge range. activities.
“Have a little confidence, don’t try to take action to just keep business here, but stay committed to an open global financial system,” Brazier said.
He is stepping down after a decade at the BoE, where the aftermath of the latest financial crisis, Brexit and COVID-19 have dominated his work.
Britain needs a plan to deal with future economic crises, given that there may be little wiggle room to cut interest rates next time around, Mr Brazier said.
“A new ‘recession policy manual’ may therefore be needed.”
The BoE cut interest rates to a record low of 0.1% as the UK entered its deepest recession in three centuries last year due to lockdowns to fight the pandemic.
The government has also intervened by granting mortgage payment “holidays” and paying companies to staff on leave to avoid mass unemployment.
If fiscal policy is to shoulder more of the burden in the future, mechanisms will be needed to coordinate monetary and fiscal policies to avoid “underlings” and “overlaps” in policy, Brazier said.
Banks have maintained credit to businesses and households over the past year, but are reluctant to tap their capital buffers despite calls from the BoE to do so, as loan losses will rise.
Brazier said reforming bank capital rules could help overcome such reluctance in a crisis.
“My utopia is to simplify bank capital… the bank capital rules are just too complex,” Brazier said.
Global regulators are also questioning whether tougher rules are needed for ‘non-banks’ or funds after central banks had to inject liquidity to avoid a market freeze a year ago when economies froze. to fight the pandemic.
But it may be more difficult to reach a global consensus for reform compared to the swift agreement on new bank capital rules after the financial crisis of more than a decade ago, Mr. Brazier.
The BoE is to organize the world’s first “climate” stress test for banks and insurers.
“Over time, you can imagine that the test becomes more difficult and that there are capital consequences,” Brazier said.
(Reporting by Rachel Armstrong and Huw Jones; Editing by Catherine Evans)
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