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Financial Policy Committee's Macro-Prudential Toolkit

Volume 550: debated on Tuesday 18 September 2012

I have today laid before Parliament a consultation document, “The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools”.

Establishing the Financial Policy Committee within the Bank of England as the UK’s macro-prudential authority is a key element of the Government’s reforms to the UK’s system of financial services regulation, as set out in the Financial Services Bill. The Financial Policy Committee will identify, monitor and address risks to the stability of the UK financial system as a whole.

It is vital that the Financial Policy Committee possesses the necessary tools to address the systemic risks that it identifies. Alongside broad powers of recommendation, the Financial Policy Committee will also have specific powers to direct the regulators to take action, which will be set out by the Treasury in secondary legislation, subject to the affirmative procedure.

Recognising the importance of these tools, the Government have committed to consulting on its proposals for the Financial Policy Committee’s direction-making powers, during the passage of the Financial Services Bill.

This document therefore sets out the Government’s proposals for the Financial Policy Committee’s initial toolkit, which have been informed by the recommendations of the interim Financial Policy Committee in March 2012.

The Government propose to make the Financial Policy Committee responsible for setting the level of the UK’s counter-cyclical capital buffer and to provide the Financial Policy Committee with a direction-making power to impose sectoral capital requirements.

The Government intend to provide the Financial Policy Committee with a direction power to set, and vary over time, a leverage ratio cap, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards.

The document contains draft secondary legislation that will provide the Financial Policy Committee with its directive tools and an impact assessment that contains illustrative estimates of the net benefits of these macro-prudential tools.

The Treasury seeks responses to the consultation on the proposals by 11 December 2012, in advance of laying the secondary legislation before Parliament once the Financial Services Bill receives Royal Assent.

Copies of “The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools” are available in the Vote Office, Printed Paper Office and the HM Treasury website.