Andrew Bailey, the governor of the Bank of England, has issued a stark warning against watering down the City regulations introduced after the 2008 banking crash, insisting there is “no trade-off” between economic growth and financial stability.
In a thinly veiled response to chancellor Rachel Reeves’s push to relax constraints imposed over the past 17 years, Bailey reminded sceptics of the severe economic damage caused by the collapse 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 declared in a speech in London on Tuesday.
Last year, during her Mansion House speech, Reeves told City bankers that the protections put in place after the financial crash had “gone too far”, as part of a broader drive to deregulate in the name of economic growth. The chancellor further directed the Financial Conduct Authority (FCA), the City watchdog, to encourage more “sensible risk-taking” by banks, asset managers and insurers.
Earlier this year, ministers ousted the chair of the UK’s competition watchdog and summoned other regulators to Downing Street, demanding that anti-growth rules be scrapped. Despite these measures, leading economists and policy experts caution that pushing City risk-taking could imperil financial stability—a repeat of the pre-2008 conditions when Labour was heavily criticised for its laissez-faire approach.
While Bailey agreed that the chancellor was right to explore changes to City regulations in her growth push, he also underscored the challenge of sluggish economic performance. “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.” Yet, speaking at the London campus of the Chicago Booth School of Business, he warned that there was fundamentally no trade-off between financial stability and a robust economy.
Bailey’s credentials lend significant weight to his caution. A key figure in the Bank’s response to the financial crisis, he previously served as chief executive of the Prudential Regulation Authority—an institution established by the then chancellor George Osborne to oversee the government’s post-2008 City reforms—and as 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 concluded.
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