Bank of England to examine whether financial reforms have held back growth

Mark Carney

Mark Carney has told the government that the Bank of England is to examine whether policies intended to strengthen financial stability in the economy have held back economic growth.

The bank governor said Threadneedle Street would use the findings of an open forum in November – when City traders and bankers are expected to give their views on regulation – to “take stock of the reform agenda in financial markets”.

In a letter to George Osborne, Carney said the bank would “look at the effects of its policies cumulatively as they are implemented, to consider whether policies designed in pursuit of its primary objective give rise to unintended, undesirable consequences when considered in aggregate.”

Carney was writing to the chancellor in his capacity as chairman of the financial policy committee (FPC), set up by the coalition government to attempt to avoid bubbles emerging that could threaten financial stability.

The FPC has two objectives: a primary one to monitor and react to risks in the financial system, and a secondary one to support the government’s economic policy.

“The committee will continue to consider the capacity of the financial sector to supply finance for productive investment when judging whether its actions could have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term,” Carney said.

Osborne had written to Carney after his July budget, called after the Conservatives won May’s general election. In his letter, Osborne set out the government’s economic policies, focused on boosting UK productivity and improving competitiveness in the financial sector.

Carney said: “The progress made in fixing the fault lines in the banking system means that the committee is now more able to broaden its focus to potential risks emanating from and associated with non-bank activities”.

Carney said the bank would look at the risks posed by liquidity drying up in markets and review the potential risks posed by non-banks such as investment funds and hedge funds.

Powered by Guardian.co.ukThis article was written by Jill Treanor City editor, for theguardian.com on Tuesday 11th August 2015 20.09 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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