(Bloomberg) — Bank of England Governor Andrew Bailey warned fragmentation of the global economy poses a risk to financial stability and called on regulators around the world to pursue common policy objectives.
Speaking at the Central Bank of Ireland Financial Systems Conference, Bailey said “we have to recognize that today we live in a world economy which is experiencing fragmentation, and that is at risk of further such pressure.”
This was partly due to the coronavirus pandemic, which caused companies to move supply chains nearer to home, and partly due to geopoliticial tensions, he added. Britain’s exit from the European Union also led to a “reduction in the openness” of the economy.
Fragmentation, Bailey said, makes the economy “inherently less stable.” He used the example of clearing and central counterparties, noting that “fragmenting this type of market infrastructure creates rather than reduces risks in markets,” and that it “also increases the cost of market functioning.”
His comments feed into Britain’s effort to gain equivalence with the EU post-Brexit on financial services regulation — or at least mutual recognition of standards that would smooth cross-border finance. A Memorandum of Understanding was signed between the UK and the EU on the subject earlier this year.
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