Financial Stability and the Role of the Financial Policy Committee

Abstract

This paper distinguishes institutional from systemic explanations for the cause of financial instability. I argue that financial crises are systemic, and as a consequence, the maintenance of financial stability requires more than simple regulation of existing institutions. The newly created Financial Policy Committee of the Bank of England, should actively manage the asset portfolio of the Treasury, with the aim of stabilizing the price to earning (PE) ratio of a broad stock market index. © 2014 The University of Manchester and John Wiley & Sons Ltd.