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Bank of England Deputy Governor tells City tougher banking rules must stay

The Guardian has reported that a senior policymaker at the Bank of England; Sir John Cunliffe, has said that regulations imposed on the banking sector since the 2008 financial crisis must not be relaxed in any effort to fuel economic growth.

He explained to a City audience that whilst Banks are a key mechanism in fuelling economic growth, it should not come at the expense of increasing risks to financial stability:

“The implementation of the detailed reforms will inevitably throw up unforeseen effects in particular places and where it is justified we will need to revisit issues. But we should be careful about talking about turning back the overall regulatory dial or trying to trade off the risk of financial instability for short-term growth.”

Cunliffe also took the opportunity in a speech in London on Tuesday to explain how the Bank of England plans to use a series of stress tests in order to test the resilience of the financial system “to different severely adverse, but plausible, scenarios.”

This comes at a time where regulators are seeking to broaden their view of the financial system after the crisis showed how risks can build unseen, creating feedback loops and contagion that can cause seemingly solid institutions to collapse. They are turning their attention to potential crises outside the banking system in institutions such as insurers and asset managers, and examining economic scenarios that may cause banks to lower their guard when making lending decisions[1].

[1] John Glover, “Bank of England May Toughen Stress Tests as Economy Rallies”, www.bloomberg.com