BoE's Bailey says no let-up over bank capital levels

Mon Mar 31, 2014 9:10am EDT

* BoE's Bailey: insurance sector well-placed for annuity change

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By Huw Jones

LONDON, March 31 (Reuters) - Banks still need to be persuaded that well-capitalised lenders are important to economic growth, Bank of England Deputy Governor Andrew Bailey said on Monday, but Britain's regulators will keep up the pressure to boost capital levels.

Banks say lending to businesses is hard when the regulator, the central bank's Prudential Regulation Authority, keeps pushing them to beef up their capital at the same time.

Britain had to use taxpayer money to bail out lenders in the 2007-09 financial crisis. Since then, it has required its banks to hold capital well in excess of new global norms.

Bailey dismissed the industry's criticism but accepted that regulators have yet to convince everyone about the need for capital.

"My experience tells me that we have had to work harder, and still have to do so, to embed the idea that a stable financial system is a necessary condition for economic growth and other economic welfare benefits, Andrew Bailey told the City Week 2014 conference.

"I am firmly of the view that last year's actions on capital were correct, and I have no doubt at all that the recovery in bank lending to support economic activity requires a belief and an expectation that the banking system is and will remain well- capitalised, and that if we doubt either of these positions, action will be taken," Bailey said.

The banking system is stronger now, but achieving this has not been straightforward or uncontroversial, he said.

"And that continues to concern me, because it conveys the message that acceptance of the benefit of the public good is not as entrenched as it needs to be - we have work to do to build the consensus around what constitutes financial stability," said Bailey, who also heads the PRA.

A stable financial system also allows other reforms, such as Finance Minister George Osborne's announcement this month that savers won't be forced to use their pension funds to buy an annuity in future. That caused shares in top insurers to fall, amid fears a key source of their profits would dry up.

But Bailey said the industry's financial position is robust enough to meet and maintain those standards without blocking another public policy objective, providing for people's welfare in old age.

He reiterated Friday's statement from the BoE that the central bank remained vigilant about Britain's housing market and was ready to take further steps if necessary. (Reporting by Huw Jones; Editing by Larry King)

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