BoE's Bailey says no let-up over bank capital levels

* BoE's Bailey: insurance sector well-placed for annuitychange

* Bailey reiterates that BoE vigilant on housing market

By Huw Jones

LONDON, March 31 (Reuters) - Banks still need to bepersuaded that well-capitalised lenders are important toeconomic growth, Bank of England Deputy Governor Andrew Baileysaid on Monday, but Britain's regulators will keep up thepressure to boost capital levels.

Banks say lending to businesses is hard when the regulator,the central bank's Prudential Regulation Authority, keepspushing them to beef up their capital at the same time.

Britain had to use taxpayer money to bail out lenders in the2007-09 financial crisis. Since then, it has required its banksto hold capital well in excess of new global norms.

Bailey dismissed the industry's criticism but accepted thatregulators have yet to convince everyone about the need forcapital.

"My experience tells me that we have had to work harder, andstill have to do so, to embed the idea that a stable financialsystem is a necessary condition for economic growth and othereconomic welfare benefits, Andrew Bailey told the City Week 2014conference.

"I am firmly of the view that last year's actions on capitalwere correct, and I have no doubt at all that the recovery inbank lending to support economic activity requires a belief andan expectation that the banking system is and will remain well-capitalised, and that if we doubt either of these positions,action will be taken," Bailey said.

The banking system is stronger now, but achieving this hasnot been straightforward or uncontroversial, he said.

"And that continues to concern me, because it conveys themessage that acceptance of the benefit of the public good is notas entrenched as it needs to be - we have work to do to buildthe consensus around what constitutes financial stability," saidBailey, who also heads the PRA.

A stable financial system also allows other reforms, such asFinance Minister George Osborne's announcement this month thatsavers won't be forced to use their pension funds to buy anannuity in future. That caused shares in top insurers to fall,amid fears a key source of their profits would dry up.

But Bailey said the industry's financial position is robustenough to meet and maintain those standards without blockinganother public policy objective, providing for people's welfarein old age.

He reiterated Friday's statement from the BoE that thecentral bank remained vigilant about Britain's housing marketand was ready to take further steps if necessary. (Reporting by Huw Jones; Editing by Larry King)