The Governor of the Bank of England, Andrew Bailey, has issued a firm caution to the government against making significant changes to the UK’s banking regulations. In particular, he warned that dismantling the existing ring-fencing regime—which separates retail and investment banking—would not be a wise move. His comments come amid the government’s ongoing drive to adjust financial regulations in order to support economic growth.
During a recent session with the Treasury Committee, Bailey responded to ideas raised in Chancellor Rachel Reeves’ Mansion House speech. He stood firmly in support of the ring-fencing rules, which were put in place after the 2008 global financial crisis. These rules were designed to make the banking system safer and to protect both the economy and individual consumers if a major bank were to collapse.
Bailey emphasised how crucial the regime is in helping manage failing banks effectively. He said that the current framework plays an essential role in reducing risks to the public and the economy. By keeping retail banking separate from riskier investment banking activities, the system offers added protection to businesses, households, and consumers alike.
While the Chancellor has argued that current financial rules may be outdated and are holding back economic progress, Bailey pushed back on that idea. He agreed that some elements could perhaps be modernised, but stressed that the broader framework remains a critical safeguard for financial stability.
Bailey stated clearly that, although improvements can always be made, completely removing the ring-fencing rules now would not be sensible. He added that these regulations have become embedded in the UK’s banking infrastructure and provide benefits that would be unwise to overlook or reverse.
In her speech, Reeves described existing financial regulations as overly cautious and a hindrance to businesses. She referred to them as a “boot on the neck” of UK firms, calling for a bold shift in how the UK regulates its financial sector to boost prosperity and growth across the country.
Despite Reeves’ strong language, Bailey maintained that there should be no trade-off between financial stability and economic growth. He argued that both can be achieved together and that relaxing core banking protections might actually harm the economy in the long run by increasing systemic risks.
Bailey went on to explain why financial oversight remains just as important today as it was in the past. He recalled the painful consequences of the 2008 crisis, noting how deeply it affected the UK’s economy. Those events highlighted the real dangers of inadequate financial regulation, which he believes should never be forgotten or dismissed.
He shared a personal reflection, acknowledging that while it might seem like the crisis is far behind us, its lessons are still relevant. He said that for those who lived through that period and worked to resolve its problems, the importance of financial regulation remains crystal clear.
Bailey also defended the idea that effective regulation can often go unnoticed. He remarked that one sign of success in financial regulation is that nothing bad happens—there are no major failures, and no one is panicking about the health of the banking system. Quiet success, he said, is still success.
When asked to comment on Reeves’ use of the phrase “boot on the neck,” Bailey carefully avoided repeating it. He distanced himself from that wording, saying it wasn’t language he would use, and made it clear that financial stability must never be sacrificed for short-term goals.
He did acknowledge the need for collaboration and said that the Bank of England is willing to work with the government to improve regulation. However, he made it clear that the fundamental principles of financial oversight should not be compromised.
In another part of his testimony, Bailey addressed concerns about rising UK government borrowing costs. He reassured MPs that the current trends are consistent with global financial movements and not a sign of something uniquely wrong in the UK economy.
He pointed out that the steepening of bond yield curves—a key indicator of borrowing costs—has been seen in several major economies. According to Bailey, the UK’s experience is in line with what is happening in markets like the United States, where shifts in policy have had a significant impact.
Finally, Bailey also spoke about the Bank of England’s long-standing research into creating a central bank digital currency. While this has been a topic of discussion for years, Bailey said that he remains sceptical and would require strong evidence to move ahead—especially if existing digital upgrades in the commercial banking sector prove successful.
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