Bank of England deputy governor sees barriers to global regulatory cooperation

Bank of England deputy governor sees barriers to global regulatory cooperation

LONDON, Oct 24 (Reuters) - Barriers to cooperation between different countries' financial regulators remain high, despite the shared nature of risks from rapid lending growth, Bank of England deputy governor Minouche Shafik said on Monday.

Shafik, who is responsible for financial markets at the British central bank, said that even if regulators could control the lending by domestic banks, foreign lending still had a major influence on the risk of financial crises.

But regulators were understandably reluctant to think beyond their own borders, she said at a conference in Hong Kong hosted by the BoE, the International Monetary Fund, and the Hong Kong Monetary Authority.

"The unequal distribution of benefits from globalisation has increased scepticism about international co-operation," she said. "The body of evidence required to justify including the interests of other nations in the setting of domestic policy is understandably large."

Research from the BoE showed that even when domestic lending growth was moderate, rapid lending growth abroad increased the risk of financial instability through cross-border lending, inflated asset prices and contagion from foreign banking crises.

Foreign and domestic rates of lending growth played a roughly equal role in a country's risk of a crisis, based on a forthcoming BoE study of 38 advanced and emerging countries between 1970 and 2011, Shafik said.

International banking rules known as Basel III require some reciprocity between regulators in applying curbs on bank lending called counter-cyclical capital buffers.

But Shafik said reciprocity would benefit from covering a wider range of tools, and that regulators should consider checking banks' health against the same risks. Growth in finance from financial markets, rather than banks, made it harder for regulators to clamp down on excessive credit growth, she added.

"Even without consensus around a fully articulated global framework for macroprudential policy, we can make quite a bit of progress by countries pursuing their local national interests," she said.

(Reporting by David Milliken; editing by Kate Holton and Toby Chopra)

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