Reform of the UK Financial Policy Committee

Abstract

We argue that: The FPC should have a wider remit; a much broader membership (covering many specialisms); should be wholly independent of Government and outside the Bank of England; its aim should be to comment publicly and authoritatively on any possible areas of risk to financial stability while itself controlling few, if any, levers of policy. The rationale for these conclusions is that: Macroprudential/financial risks come from many sources; many of these sources are structural and outside of the Bank’s regulatory purview/competence; in a sense, the Bank gets to mark its own homework as regards issues such as the SMR, resolution, appropriateness of capital, effectiveness of ring-fencing etc.; many aspects of macroprudential actions have distributional implications, and hence, politicians, not the Bank or any other body, should take and justify, or not, these decisions.