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New BoE regulator warns of risks from US rate hikes, dollar strength

Tuesday, March 17, 2015 - 21:31
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The start of US interest rate rises could inject volatility into global financial markets and create risks for Britain's financial stability, a new member of the Bank of England's top panel of financial regulators said on Tuesday.

[LONDON] The start of US interest rate rises could inject volatility into global financial markets and create risks for Britain's financial stability, a new member of the Bank of England's top panel of financial regulators said on Tuesday.

Alex Brazier, who took a seat on the BoE's Financial Policy Committee on Monday, cited the normalisation of US borrowing costs as one of the main global risks for markets.

The FPC was set up in 2013 after the failure of Britain's financial regulation to protect the country against the 2007-08 financial crisis. Last year it imposed curbs on large mortgages and required banks to hold more reserves against potential losses.

Mr Brazier - in remarks which share concerns expressed by other BoE officials - said rate hikes by the US Federal Reserve or a change in perceptions of their timing and scale would reflect good news about the US economic recovery.

"However, it would probably reduce the extent of the search for yield and prompt a reduction in global risk appetite," Mr Brazier said in answer to questions from members of parliament who are reviewing his appointment.

Mr Brazier joined the BoE in 2001 after university, and most recently served as principal private secretary to Governor Mark Carney and his predecessor, Mervyn King.

"Both of them pushed me to the edges of my limits," Mr Brazier said, noting that his hair had turned prematurely grey.

Mr Brazier is now the BoE's executive director for financial stability, strategy and risk. This is a new role created last year by Carney as part of a shake-up of the bank. BoE chief economist Spencer Dale briefly held the job before he quit to become chief economist for oil company BP.

Mr Brazier said other risks to Britain included high levels of debt in the eurozone, and that he could not see any way Greece could pay back all the money which it had borrowed.

Strength in the US dollar posed problems for China and other emerging economies, which could pose problems to British banks which had lent money there, he added.

He also said the FPC should keep a close eye on risks in financial institutions other than banks, and consider making them hold extra risk buffers similar to those held by banks.

Regulation also needed to be more favourable to new, smaller banks, something which is already in train. In the past it had benefited incumbents, limiting competition, especially for small business lending.

REUTERS