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29Oct14

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Bank of England chief economist wants global coordination on financial risks

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Bank of England chief economist Andrew Haldane said on Wednesday that he would like to see greater global policy coordination to reduce the risk of future financial crises.

While getting countries to coordinate interest rate moves was unrealistic, building on efforts to synchronize policies on bank lending and other issues might be possible in the future.

The global financial system was fragile, Haldane said in a speech at the University of Birmingham, which did not touch on monetary policy.

Booms and busts in asset prices increasingly followed global trends, so the International Monetary Fund should go beyond country-level analysis and look at broader risks, he said.

"I have a dream," Haldane said. "It involves a Star Trek chair and a bank of monitors. It would involve tracking the global flow of funds in close to real time, in much the same way as happens with global weather systems."

Better knowledge of hot spots in asset markets could enable countries to act together to tackle them.

Haldane said a first step was the reciprocity provision built into global rules on cyclically varying capital buffers on banks. If one country tightens capital rules on banks, other countries are obliged to apply that to their banks that lend money to households and firms in the first country.

Further measures may be needed, to tackle asset managers as well as banks, and to focus on global markets rather than individual countries, Haldane said.

"It would take international macroprudential policy coordination to the next level. While not without operational problems, this is much more likely to be a practical policy option than coordinating national monetary policies," he said.

Haldane also voiced support for the idea of government bonds with payments which were not fixed but linked to economic growth, and said the IMF needed more resources to bail out countries.

[Source: Reuters, London, 29Oct14]

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