Paul Tucker said in an interview with the Financial Times that regulators must make stricter rules to oversee hedge funds and shadow banks. The outgoing deputy governor of the Bank of England said that traditional banks are heavily scrutinized. But a large part of money today is moving to hedge funds and shadow banks, increasing risk. Tucker said it will be disastrous if what happened to banks during and before the financial crisis, happens outside the mainstream banking sector.
Paul Tucker leaves BOE for Harvard
Paul Tucker reasoned by citing the situation in 2004. The super-low interest rates after the dot-com bubble fueled risk-taking that resulted in the 2007-09 financial crisis. The current environment looks similar as almost every major central bank has kept interest rates at all-time lows. Paul Tucker said the Western world is repairing itself from the previous crisis. The countries involved must make sure that they don’t brew another one.
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He said no securities regulator in the world is collecting sufficient information about non-banks yet. They have to improve the oversight of non-banks. Paul Tucker was in the race to succeed Sir Mervyn King as the new Bank of England governor. But Mark Carney snatched the post. Mr. Tucker is leaving the Bank of England for Harvard University.
Paul Tucker: central banks can’t do everything
During the interview, Tucker said that the Bank of England has been represented as the chief guardian of Britain’s financial stability. That underplayed the responsibilities of institutions like the umbrella group Iosco, U.K.’s Financial Conduct Authority, and the Securities and Exchange Commission in the U.S.
Paul Tucker said that central banks can’t do everything. In the future, a lot of monitoring will be done at the ground level. However, Tucker thinks that regulators have made a lot of progress since the financial crisis. Had the current tools been in place prior to 2007-09, there could have been obstacles, but the world could have avoided the catastrophe.
Chancellor George Osborne recently allowed Chinese banks to open branches in London instead of subsidiaries, which are better monitored. Paul Tucker said the move won’t trigger regulatory issues if Chinese banks acted as wholesale lenders.