By Huw Jones
LONDON, July 28 (Reuters) - Banks must make painfuladjustments to how they operate in a post-crisis world and notrely on policymakers turning back the overall "regulatory dial",Bank of England Deputy Governor Jon Cunliffe said on Tuesday.
Asking whether regulators have gone too far in imposingtougher capital requirements after the 2007-09 financial crisis,Cunliffe said some reforms will need "fine tuning".
It was wrong, however, to imagine there was some recent"halcyon" world of banks supporting the economy and that it canbe recreated quickly by loosening the regulatory straitjacket,he said.
"The post-crisis world requires a major adjustment in bankbusiness models," Cunliffe told a dinner held by The CityUK,which promotes Britain's financial services sector.
"This is not some unintended consequence of overzealousregulation. It is a necessary, if painful adjustment to a newreality," said Cunliffe, who is responsible for financialstability at the Bank.
Banks have complained that burdensome regulation makes itmore expensive to lend to companies or to make markets in sharesor bonds to raise funds.
HSBC bank has said regulation is one of the factorsit is considering in deciding whether to keep its head office inBritain. UK Finance Minister George Osborne this monthannounced that a levy on banks, which HSBC pays, will beslashed.
In addition, he gave the Bank of England's Financial PolicyCommittee (FPC) an added remit of ensuring that Britain is anattractive place for international financial firms. He alsorefused to extend the term of Martin Wheatley, the hard-linechief executive of the Financial Conduct Authority and FPCmember.
Cunliffe said economic growth and productivity were notantithetical to regulation.
"The implementation of the detailed reforms will inevitablythrow up unforeseen effects in particular places, and where itis justified we will need to revisit issues," Cunliffe said.
"But we should be careful about talking about turning backthe overall regulatory dial or trying to trade off the risk offinancial instability for short-term growth."
The BoE will begin tailoring its annual stress test of banksaccording to the economic cycle, with a tougher exercise duringboom times when credit risk is building up and easing when theeconomy slows, Cunliffe said. (Reporting by Huw Jones, editing by Larry King)