April 27 (Bloomberg) -- Bank of England Deputy Governor Paul Tucker said new rules to regulate shadow banking must be able to adapt to innovation in the financial-services industry.
“It would be foolhardy to imagine that we can frame policies today that will stand the test of time,” Tucker, who is in charge of financial stability at the central bank, said in the text of a speech he is schedule to deliver in Brussels today. “The financial system will evolve, and we need to permit innovation. A policy framework on shadow banking therefore needs to be adaptive. And it mustn’t try to shut everything down.”
In remarks examining the various types of shadow banking, Tucker said vehicles that are sponsored or operated by banks should be consolidated onto banks’ balance sheets. He also said that only banks should be able to use clients’ assets such as cash or securities to finance their own business. Institutions that aren’t banks should segregate such assets, he said.
Still, Tucker said that non-bank finance “is not a bad thing in itself.”
“Indeed, it can be a very good thing, helping to make financial services more efficient and effective and the system as a whole more resilient,” he said. “We must remember that as we make policy.”
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