A POWERFUL new Bank of England committee to police the banking sector will be up and running in the autumn, the government has said.
The Financial Policy Committee will be initially set up on an interim basis as legislation is looked at by parliament, according to the coalition government’s Financial Regulation consultation document.
Its membership will include the governor of the Bank and the chairman and chief executive of the Financial Services Authority.
The committee will have “ultimate authority to identify imbalances, risks and vulnerabilities in the financial system and take decisive action to mitigate these in order to protect the wider economy,” the document said.
Plans to create such a body and give the Bank powers over financial regulation were announced by the Conservative Party before the May election. They were later confirmed by Chancellor George Osborne in June.
Still up for discussion is exactly the kind of tools the new committee will have to engage in so-called macro-prudential regulation.
The government is looking at countercyclical capital requirements which would add a “buffer” to capital requirements based on the current cyclical position of the economy. For example, when private sector credit is growing rapidly, banks might be forced to hold additional levels of capital.
The FPC might also gain the power to limit mortgage lending by imposing collateral limits.