LONDON, Nov 4 (Reuters) - Bank of England Deputy Governor Jon Cunliffe said on Tuesday that European Union regulatory changes since the financial crisis may have reduced liquidity in financial markets and increased its cost.
“Liquidity and market making does seem to have been reduced,” Cunliffe told a committee of lawmakers.
“We’re not sure how much of it is the result of regulatory action, and how much of it is do with the change in business model for the institutions.”
Cunliffe said high levels of market liquidity seen before the financial crisis, which some people “hark back” to, were partly illusory, as this liquidity dried up during periods of market turmoil.
David Rule, the BoE’s executive director for prudential policy, said banks had responded to regulatory incentives and increased their focus on the real economy, rather than financial market trading for its own sake. (Reporting by Andy Bruce and David Milliken)