Bank of England governor Andrew Bailey has warned against loosening regulation too much, in a speech that comes as the UK and US governments both look to take a hatchet to tight rules governing various sectors and encourage watchdogs to lean back a bit more.
The former boss of the City watchdog said: "There is a reaction taking place against regulation, and the responses to the global financial crisis,” Bailey said in a speech in London, entitled 'Are we underestimating changes in financial markets?'
This comes after Chancellor Rachel Reeves said in her Mansion House speech in November that red tape brought in following the 2008 financial crisis had gone "too far" and was stifling growth.
Bailey argued that "there is no trade-off between economic growth and financial stability.
"That said, there are usually choices about how we deal with evidence of vulnerabilities. It is critical that we have and develop tools of assessment and intervention.
"But these interventions may not always need to be more regulation."
Bailey said current dangers include "a tendency towards increased concentration and interconnectedness" while "opacity and limited visibility in certain markets tends to lead to crowded trades, impairs risk management, and is more likely to prompt a rush to the exit in times of stress".
He said: "The market looks very different to what it was only five years ago. It involves large shifts in leverage, pricing power, speed of trading and liquidity provision.
"To be clear, these changes are not inherently bad, but they could create a new set of financial stability vulnerabilities which we need to understand and monitor and adapt new tools and approaches where appropriate."