Paul Tucker, the Bank of England's Deputy Governor of Financial Stability, spoke at the Eurofi High Level Seminar in Copenhagen on 29 March, 2012.
The EU has a terrific opportunity to be a – maybe the – global leader on macro-prudential regimes. Although this field lies between the natural habitats of various of the Commission’s directorates, it should not let the opportunity slip. This is a prospect that, in truth, makes some micro-prudential supervisors nervous, as it may invade their space. And it raises legitimate questions about how it can be squared with a single rule book for the Single Market. In reconciling these issues, we should not forget that there are as many as 15 million people unemployed in the western world due to a financial crisis that is now nearly five years old.
The essential facts are twofold. First, no one can put their hand on their heart and swear that the single rule book for minimum standards will prove fit for all seasons. Those who frame the micro regulatory rules are not clairvoyant. Sometimes supervisors will, for example, need tougher requirements for a while to head off exuberance that threatens to tip over, once a bubble bursts, into instability. This is not about waivers from the minimum standards.
Second, this is by no means important only for the UK given our international financial centre. If I may be permitted to say so, the euro area also needs a regime for macro-prudential policy at the level of national authorities. As Jean-Claude Trichet has said, while the monetary union is complete, economic union is not. Local credit booms will eventually recur. In the absence, by definition and by choice, of local currency flexibility and monetary policy, such euro area members need macro-prudential tools to lean against and contain local credit problems. That is in everyone’s interests. It would have helped in the past.
A harsh lesson of the crisis is that some new discretions are needed for Member States. That can, and should, be achieved without threatening the integrity of the single market. Drawing on the opinions on CRD IV from the ESRB and the ECB, the EU should seize this and, at the same time, be a global leader in designing a framework for macro-prudential policy.
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