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By Rachel Armstrong and Huw Jones
LONDON, March 29 (Reuters) - Britain should 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 Brazier said on Monday.
The City of London was cut adrift from the EU market on Dec.
31 and has yet to be granted "equivalence" or market access by
Brussels.
"Equivalence that signs up to being a complete rule-taker is
potentially very problematic from a financial stability
perspective," Brazier told a Reuters Newsmaker forum.
They are the BoE's first comments since Britain and the
27-country EU agreed on Friday to a framework for informal
regulatory cooperation, seen as a first step before Brussels
considers any equivalence access.
Euro stock and derivatives trading worth billions of euros
daily has left London for the bloc and Brazier said equivalence
would not make much difference given it does not cover a vast
range of activity.
"Have a bit of confidence, don't try and take measures to
just keep business here, but let's stay committed to an open,
global financial system," Brazier said.
He is standing down after a decade at the BoE, where the
aftermath of the last financial crisis, Brexit and COVID-19 have
dominated his work.
Britain needs a blueprint for dealing with future economic
crises, given there may be little headroom for cutting interest
rates next time round, Brazier said.
"So a new 'recession policy playbook' may be needed."
The BoE cut interest rates to a record low of 0.1% as the UK
went into its deepest recession in three centuries last year due
to lockdowns to fight the pandemic.
The government also stepped in by granting payment
"holidays" on mortgages and paying companies to furlough staff
to avoid mass unemployment.
If fiscal policy is going to take more of the burden in
future, mechanisms will be needed to co-ordinate monetary and
fiscal policies to avoid "underlaps" and "overlaps" in policy,
Brazier said.
UTOPIA
Banks have kept credit flowing 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 losses on loans
are set to mount.
Brazier said reform to bank capital rules could help
overcome such reluctance in a crisis.
"My utopia is simplifying bank capital ... bank capital
rules are just too complex," Brazier said.
Global regulators are also debating whether stricter rules
are needed for "non-banks" or funds after central banks had to
inject liquidity to avoid markets freezing a year ago when
economies went into lockdown to fight the pandemic.
But it may be more difficult to achieve global consensus for
reform compared to the rapid deal on new bank capital rules
after the financial crisis over a decade ago, Brazier said.
The BoE is due to hold the world's first "climate" related
stress test for banks and insurers.
"Over time you can imagine the test getting tougher and
there being capital consequences," Brazier said.
(Reporting by Rachel Armstrong and Huw Jones; Editing by
Catherine Evans)
