Of Special Interest
- Financial wellness affects half of peoples’ mental or physical health, finds report
- Study finds traditional financial institutions embrace Fintech disruption
- Grass is greener for environmentally friendly businesses, finds Barclays
- Prospective homeowners would consider a 40-year mortgage to escape renting, finds Santander
- Millennials’ needs are changing the face of banking industry, says new report
- FS is putting consumer data at risk by failing to protect mobile apps, says Arxan
- A lack of belief in their ability holds 28% women back in work, says Cambridge & Counties
- ‘Which?’ reveals Scotland has lost over a third of its bank branches in eight years
- Next downturn unlikely to be as bad as 2008, according to S&P
- FCA reveals findings from first cryptoassets consumer research
- US consumers favour single mobile app for banking and payments
- Banks suffering major IT shutdowns every day, ‘Which?’ reveals
- The US will be a key offshore centre in 2019, says GlobalData
- Debit industry changes markedly in 10 years of the Debit Issuer Study
- UK's ‘Big Five’ face ‘too big to compete’ as small challengers secure stellar returns
- Banks as vulnerable now as before crash, says new study
- Leverage ratio a constant conundrum for European and US banks, says SNL
27th March 2012
BoE governor UK speaks of financial stability tools 'experiment'
Sir Mervyn King, governor of the Bank of England told a conference that the Bank of England "knows absolutely nothing" about how the Financial Policy Committee (FPC) policy instruments will work in practice. He said: ". .One thing I want to stress is that this is an experiment. . . We know absolutely nothing about how these instruments are going to work. It is very important that we play it safe and be cautious.". The FPC is a new subsidiary of the Bank of England established by the current government. It gains statutory powers next year as part of the break up of the Financial Services Authority. Its brief is to deliver long term financial stability.
King explained that in is recent submission to parliament it had asked for three specific powers:
- the power to set countercyclical capital buffers;
- the ability to set higher capital requirements for specific sectors judged higher risk;
- the power to set leverage ratios.
It may, or may not, have been coincidental that the British Bankers Association chose the same time to make its requests of the FPC. Explaining the background Paul Chisnall, the BBA’s executive director for financial policy explained:
“The FPC will be publishing quarterly reports which will be watched closely. But while its equivalent on the monetary side - the Monetary Policy Committee - reports on a single, specific indicator for monetary policy (the inflation rate) there is no similar, single indicator for financial stability. The FPC will therefore be expected to exercise a greater degree of judgement when identifying possible threats to financial stability. As such, it will have a greater responsibility to explain any actions it considers necessary to prevent threats materialising.
“The FPC's remit to monitor risk is across the entire financial system and it will have the ability to recommend to the new regulator – the Prudential Regulatory Authority - a widening of the regulatory parameter if it sees a need.”
Moving on to the specific requests the BBA asked that the actions of the FPC should be determined by:
- a preference for simplicity;
- the need for transparency;
- an element of predictability;
- international coordination
Apart from the UK, Switzerland is one of the only other European countries that has shown a strong interest in setting further banking financial regulation above and beyond the Basel III proposals. Few can argue that Mervyn King is right in stating that the FPC will be moving into an area where there are few precedents. It may also prove another case where his frankness may offend some within the Treasury.