Britain will not take part in "race to bottom" on financial rules, BoE Deputy Governor says

By Sinead Cruise

LONDON (Reuters) -Bank of England Deputy Governor Sam Woods has said Britain should avoid participating in a "race to the bottom" on financial regulation, amid concerns the United States might opt out of reforms designed to galvanise the world's banking system.

U.S. Federal Reserve Vice Chair of Supervision Michael Barr on Monday announced he would resign early from his regulatory oversight role, raising questions about how President-elect Donald Trump might try to reshape the U.S. central bank and the supervision of Wall Street during his second term as president.

Woods, who leads the regulatory arm of the UK central bank, told a parliamentary session that new goals to support competitiveness and growth of Britain's financial sector would not translate to a reduction in standards, adding that resilience and competitiveness could "go hand in hand".

"Financial crises in particular are extremely expensive and very bad for growth," he said.

DEREGULATION

As the U.S. financial system awaits potentially significant deregulation under Trump, analysts predict other regions will have to follow its lead to bolster their domestic financial industries.

The global implementation of Basel III bank capital rules, painstakingly crafted over more than a decade, could be first to hit the skids, experts said.

"As the Trump administration weakens banking regulations and/or supervision, this will embolden European and British banking lobbyists to weaken Basel III and other banking rules in those regions as well," Mayra Rodriguez Valladares, managing principal at MRV Associates, told Reuters.

Britain has already said it will tweak some Basel proposals to better meet the needs of its domestic banking system, specifically with regards to capital requirements on small business lending - a move the BoE's Woods said was "not a small thing."

"What we're doing on SME finance, on Infrastructure Finance and on trade finance, those are risk judgments. We're putting less capital into the system than we might otherwise have done, actually out of line with international requirements, but to a degree that is tolerable," he added.

British Prime Minister Keir Starmer wrote to more than 10 top regulators - including the PRA, Financial Conduct Authority and the Competition and Markets Authority - on Dec. 24, asking them to present pro-growth initiatives to Downing Street by mid-January.

Woods said the regulator was already responding to government calls to encourage sensible risk-taking in the financial industry by scrapping a cap on bank bonuses and launching a consultation to significantly reduce the time bankers are required to wait before accessing those payouts.

"Regulators naturally have a fear that, in the abstract, they'll get very strong encouragement to allow more risk taking, and then when an actual concrete risk crystallizes, politicians will say, 'Well, we didn't mean that risk'," he said.

"But I think that's just life, and you've got to try and balance these."

(Reporting By Sinead Cruise, editing by Lawrence White)