It’s easy to score political points attacking banks these days. It’s also easy to derail an economic recovery restricting and discouraging bank activity as well.
Sir John Gieve, the former Deputy Governor of the Bank of England, has warned that politicians’ obsession with banking regulation is putting the cart before the horse and threatening recovery.
Sir John, who was in charge of financial stability during the banking crisis, said tightening fiscal policy and looking at interest rates should be priorities for an incoming government’s economic policy. However, the former Government mandarin, who joined hedge fund GLG as an adviser last year, said putting regulation at the forefront of policy would push banks to scale back their balance sheets at a time when they need to be in growth phase to aid recovery.
“To set economic policy going forward what we need to do first is tighten up fiscal policy. Then, second, to look at interest rates. And then third, to look at regulation,” he said. “To be effective, economic policy needs to be set in that order. But at the moment, the risk is that we could be doing exactly the reverse and wrong order. That means banks will be deleveraging in anticipation of regulation just at a time when we need them to be in growth.”
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