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MNI (London)
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
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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