FPC will dictate sector capital requirements, BoE
Financial Policy Committee member Alastair Clark outlines powers and responsibilities of new regulator.
The Financial Policy Committee will be able to dictate the capital requirements for certain relevant sectors, the Bank of England has revealed today (24 May).
In a speech to the Society of Business Economists, Alastair Clark, FPC member, said: “The committee was required to provide advice to the Treasury on the set of instruments over which it wanted this power of direction.”
He added that, following a period of consultation, the committee felt that “it would be best to focus on a narrow set of instruments: the counter-cyclical capital buffer, sectoral capital requirements and bank leverage ratios”.
The FPC will be able to give other directives as well to the Prudential Regulation Authority and Financial Conduct Authority, although these will be on a “comply or explain” basis, wherein the body in question can decide not to follow the FPC’s recommendation as long as it provides an explanation justifying the decision.
Outlining the role of the FPC, Mr Clark said the body is “the fire prevention officer not the fire brigade”.
Neither will it be the job of the committee to monitor or undermine the decisions of the PRA, rather, the FPC will conduct macroprudential regulation “to monitor, analyse and respond to risks in the financial system as a whole”.
This objective requires the FPC both to respond to risks that are building in the system, and to put in place structural features that make it less prone to the build-up of risks. But Mr Clark warns that this wide remit could make quantitative monitoring of the FPC’s performance and success more difficult.