Financial Policy Committee

Chris Giles

I always enjoy reading speeches by Paul Fisher, executive director for markets at the Bank of England. They clearly set out his views and appear to come straight from the central propaganda unit of the BoE.  If you want to know the official line on the new Financial Policy Committee or macroprudential policy, read Paul’s speech from last night, for example.

The speech blames the lack of powers available to the BoE for officials’ inability to control the crisis, but reassures us that the new FPC is now seeing its recommendations implemented.

The logic of the speech is that the BoE’s voice could not work before the crisis so the BoE cannot be blamed. Yet voice is succeeding now, so the BoE must get the credit.

What is remarkable is that Mr Fischer seems to forget that the powers available to the BoE now are precisely the same as those available to the BoE in the crisis. New powers will come only when legislation is passed and certainly not until 2013.

Read the speech to feel the full righteousness of the BoE official line.  Or you can read the best quotes below. Read more

Claire Jones

Sir Mervyn King has in the past been of the sort of central banker that has, at every opportunity, extolled the virtues of inflation targeting.

So comments at yesterday’s Inflation Report press conference, where the governor conceded that the Bank of England’s monetary policy framework has its deficiencies, were something of a surprise. Here’s what he said:

“I do think the experience of the last four to five years has raised some question marks about what inflation targeting can hope to achieve and whether it’s sufficient. I think our feeling now is, on its own, it’s not sufficient, it did not prevent the build up of a large degree of financial instability. And there is I think a debate to be had about whether other instruments are the right way to deal with that, through our Financial Policy Committee, or whether monetary policy should take other considerations into account.”

Could this be the beginning of the end for the Bank of England’s inflation target, at least in its current guise?

It’s far too early to say. Besides, with the governor due to depart mid-way through next year, whether or not the Bank alters its monetary policy framework will largely depend on the views of Sir Mervyn’s successor.

However, his calls for a debate could prove significant. Read more

Claire Jones

Andy Haldane, the Bank of England’s executive director for financial stability, is considered one of the most original thinkers in any central bank.

Mr Haldane, to his credit, not only picks holes in existing practices, but also suggests possible fixes.

His call for regulators to lower capital and liquidity buffers has, however, largely fallen on deaf ears, with the majority of the interim Financial Policy Committee against it. But another of his ideas appears to be more popular. Read more

Claire Jones

It is not only lenders that are calling for less stringent regulatory requirements.

The record of the Bank of England’s Financial Policy Committee meeting show its membership – made up of the same senior officials from the Bank and the Financial Services Authority that help set the regulatory agenda – was split over whether to lower capital and liquidity ratios.

This from the record:

The balance of opinion on the Committee was that it would be inappropriate in current circumstances for banks to reduce capital and liquidity ratios.

To be sure, none were siding with the banks’ view that Basel III is too tough. But some argued that reducing requirements for the time being – say from now until the economy recovers – may prop up growth by encouraging banks to lend.

This goes a lot further than the FPC’s statement, published last week, which said only that – if financial conditions worsen – it was “natural” that capital and liquidity buffers would be run down.

Unlike with the Monetary Policy Committee, we are in the dark about how individual FPC members vote. So it is impossible to tell how close, or otherwise, it was to recommending a lowering of capital and liquidity ratios.

But those reluctant to act were probably right.  Read more

Claire Jones

Regulators on both sides of the Atlantic are calling on banks to strengthen their capital buffers by lowering dividends.

Britain’s Financial Policy Committee yesterday suggested as much. Today, Eric Rosengren, the president of the Federal Reserve Bank of Boston, was more explicit.

Mr Rosengren’s approach is also more interventionist. Read more

Claire Jones

The Bank of England’s Financial Policy Committee statement, out today, has left a lot of people scratching their heads.

The first of two recommendations calls on banks to “take any opportunity they had to strengthen their levels of capital and liquidity so as to increase their capacity to absorb flexibly any future shocks, without constraining lending to the wider economy”. The second warns that “some actions taken to raise capital or liquidity ratios could potentially worsen the feedback loop between the financial sector and the wider economy, and so should be avoided”.

At first glance, the recommendations appear contradictory. They are not. But they are conflicting.   Read more

Claire Jones

Do today’s Bankstats data go some way to explaining why the Financial Policy Committee is so concerned about the commercial real estate sector?

The Bank of England data show that, at £2.94bn, write-offs for bank and building society loans to non-financial corporations in the three months to June were at their highest level since the Bank began collecting the data in 1993. The figure jumped from £1.08bn in the first quarter. The previous high was £2.49bn, seen in the final three months of 2009.

How much of this is accounted for by commercial real estate loans? Read more