The governor of the Bank of England has warned against watering down City regulations introduced after the 2008 banking crash, saying there was “no trade-off” between economic growth and financial stability.
In a thinly veiled response to chancellor Rachel Reeves’s push to loosen the constraints brought in over the past 17 years, Andrew Bailey said that it was important not to forget the damage to the economy caused by the implosion of the global financial system.
“There is a reaction taking place against regulation, and the responses to the global financial crisis [GFC]. We must not forget the lasting damage done by the GFC,” he said in a speech in London on Tuesday.
Reeves told City bankers attending her Mansion House speech last year that protections put in place after the financial crash had “gone too far”, amid a broader deregulation drive in an attempt to drive up economic growth.
The chancellor also ordered the Financial Conduct Authority (FCA), the City watchdog, to encourage more “sensible risk-taking” by banks, asset managers and insurers, as part of a broader push for growth.
Earlier this year ministers also forced out the chair of the UK’s competition watchdog and hauled in other regulators to Downing Street to demand they rip up anti-growth rules.
However, leading economists and policy experts warn that encouraging City risk-taking could threaten financial stability, in a re-run of the conditions before the 2008 crash when Labour was blamed for its laissez-faire approach.
Bailey said the chancellor was right to explore changes to City regulations in her growth push. “On slow growth, we have to tackle this question. We have structurally slow growth, it has fallen since the financial crisis and we need to address that.”
However, he warned in comments at the London campus of the Chicago Booth School of Business that there was fundamentally no trade-off between financial stability and a strong economy.
Bailey had been a key figure in the Bank’s response to the financial crisis and was chief executive of the Prudential Regulation Authority, created by the then chancellor George Osborne, to oversee the government’s post-2008 City reforms. He was also chief executive of the FCA before his appointment as the Bank’s governor in 2020.
“Memories disappear in the rear-view mirror. And those of us who lived through it, worked through it and had to deal with it, are left saying ‘just remember what we had to deal with’,” he said.
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