MP-UK: Macroprudential Policy in Action in the UK
We now turn to discuss how the macroprudential agenda has been put into action in the UK. For a discussion of what has been done elsewhere, see Cerutti et al. (2015) and the references therein. To be fair, the UK has been something of a pioneer in this ar
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e now turn to discuss how the macroprudential agenda has been put into action in the UK. For a discussion of what has been done elsewhere, see Cerutti et al. (2015) and the references therein. To be fair, the UK has been something of a pioneer in this area—with the Chancellor (George Osborne) keen to forge ahead on establishing a macroprudential regime and a BoE Governor (Mark Carney) keen to shape the macroprudential agenda.
11.1 Institutions We begin with a discussion of the institutions of macroprudential policy and their respective instruments. While the lead actor on the stage—the Financial Policy Committee (FPC)—is the policymaker in the spotlight, it is important to keep in mind that it will be aided and abetted by a supporting cast of other policy institutions. Indeed, in a crisis, the FPC will exit stage left, to be replaced by the traditional guardian of financial stability.
11.1.1 The Financial Policy Committee The Chancellor announced the creation of an independent FPC at the BoE in his 2010 Mansion House Speech. The Committee was to be given responsibility for dealing with ‘macro issues that threaten economic and financial stability’ and handed the tools to do the job. The FPC was initially established in interim form (by the Bank’s Court of Directors) in February 2011, © The Author(s) 2017 R. Barwell, Macroeconomic Policy after the Crash, DOI 10.1007/978-3-319-40463-9_11
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Macroeconomic Policy after the Crash
and then in April 2013, the Financial Services Act established the FPC on a statutory basis. The FPC was originally established as a subcommittee of the Court of the BoE, but thanks to the Bank of England and Financial Services Act 2016 would eventually become a policy committee of the BoE, mirroring the arrangements for the MPC and the PRC that is to be established. The FPC’s primary objective is to contribute to the achievement of the BoE’s Financial Stability objective (‘to protect and enhance the stability of the financial system of the United Kingdom’), primarily by identifying, monitoring and taking action to remove or reduce systemic risk, with a view to protecting and enhancing the resilience of the UK financial system. Three systemic risks are explicitly identified in the new clauses of the BoE Act: structural features of financial markets; the distribution of risk within the financial sector; and unsustainable levels of leverage, debt or credit growth. Subject to the pursuit of that primary objective, the Committee has a secondary objective of supporting the government’s wider economic policy, including its objectives for growth and employment. The Chancellor is required to write to the Committee at least once a year to outline those economic policies and to recommend how members of the Committee should interpret the FPC’s remit. The current membership of the FPC is as follows: the Governor of the BoE, three Deputy Governors (Financial Stability, Monetary Policy and Prudential Regulation), the Executive Director for Financial Stability Strategy and Risk at the BoE, the C
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