By Ben Simmons

The Bank of England’s new Financial Policy Committee has a key responsibility to explain clearly how it will carry out its responsibility to ensure the UK’s financial stability, the British Bankers’ Association said today.

The FPC's greatest power may well be its ability to advise financial services firms of potential risks to the economy and to influence the necessary change, Paul Chisnall, the BBA’s executive director for financial policy, writes today on the BBA blog:

“The FPC will be publishing quarterly reports which will be watched closely. But while its equivalent on the monetary side - the Monetary Policy Committee - reports on a single, specific indicator for monetary policy (the inflation rate) there is no similar, single indicator for financial stability. The FPC will therefore be expected to exercise a greater degree of judgement when identifying possible threats to financial stability. As such, it will have a greater responsibility to explain any actions it considers necessary to prevent threats materialising.

“The FPC's remit to monitor risk is across the entire financial system and it will have the ability to recommend to the new regulator — the Prudential Regulatory Authority - a widening of the regulatory parameter if it sees a need.”

The BBA has called for the FPC’s approach to macro-prudential regulation to be governed by five principles:
• a preference for simplicity;
• the need for transparency;
• an element of predictability;
• proportionality; and
• international coordination.