MNI: BOE FPC Taylor - No Way Financial Regulation Gone Too Far

By David Robinson

     LONDON (MNI) - Martin Taylor, an external member of the Bank of England's

Financial Policy Committee, on Tuesday firmly rejected criticism that financial

regulation had gone too far.

     In a speech to the IEA/IIMR Annual Conference, Taylor said that a core

question over whether bank capital requirements were too stringent only made

sense by considering other elements of financial regulation. The more confident

that regulators are that failing banks can be resolved, the less weight they

need to place on bank capital.

     "If the FPC did not believe that failing banks could be successfully

resolved, or that structural reform and beefed-up supervision provided some

protection, the FPC would feel the need to increase capital requirements on

banks by around 500 basis points of Tier 1 capital," Taylor said.

     He said that the FPC's innovation has been to make bank capital

requirements countercyclical, building up buffers in the better times so banks

don't choke off credit supply in the darker ones.

     The Countercyclical Capital Buffer "is designed to override the instinct of

a micro-prudential regulator, and to prevent capital requirements standing in

the way of banks' providing the real economy with finance during a crisis,"

Taylor said.

     The FPC is gradually raising the buffer in part to try and ensure credit

supply is smoothed through the cycle.

     The complaints from sections of the banking industry that capital

requirements are too onerous ignore the fact that without them banks would face

tougher regulation elsewhere.

     "I don't believe financial regulation has gone too far. No way," Taylor

concluded.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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