ADAIR Turner, the chairman of the Financial Services Authority, has called for the creation of a new Monetary Policy Committee-style independent body to examine risk in the financial sector.
Turner yesterday said there is a need “for another set of [macroprudential] tools apart from the interest rate to take away the punchbowl before the party gets going”, in order to combat systemic risk.
He added that the best way to employ such tools would be a committee similar to the MPC and immune from political pressures.
Speaking at an ICAEW conference on banking, Turner said that the current system of accounting in banking was one of the major contributing factors to the global financial recession.
He said the use of fair value approaches to the valuation of assets in trading books and in the calculation of profit and loss reinforce a “cycle of self-fulfilling procyclicality” – whereby potentially illusory profits generated by apparently rising values lead to increased profits, trading activity and lending, and vice versa on the downside.