Financial Policy Committee

In anticipation of legislation to create a Financial Policy Committee (FPC), outlined in the Government’s consultation document A new approach to financial regulation: building a stronger system, the Government and the Bank announced the establishment of an interim Financial Policy Committee on 17 February 2011.

The first policy meeting of the Financial Policy Committee was held in June 2011.

The Government envisages that the FPC will contribute to the Bank’s financial stability objective by identifying, monitoring, and taking action to remove or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The interim FPC will undertake, as far as possible, the forthcoming statutory FPC’s macro-prudential role. An important initial task will be to carry out preparatory work and analysis into potential macro-prudential tools. The Government’s consultation document states that the interim FPC “...will play a key role in the development of the permanent body’s toolkit by sharing its analysis and advice on macro-prudential instruments with the Treasury, to help inform the Government’s proposals for the FPC’s final macro-prudential toolkit”.

The FPC is a committee of the Bank's Court of Directors. The composition of the FPC's membership resembles closely that of the proposed statutory body. The interim Committee is chaired by the Governor of the Bank of England, Mervyn King and also includes: the Bank's Deputy Governor for Financial Stability, Paul Tucker; the Bank's Deputy Governor for Monetary Policy, Charlie Bean; the Chief Executive of the Financial Services Authority, Hector Sants (in his capacity as future Deputy Governor for Prudential Regulation and Chief Executive of the Prudential Regulation Authority); the Chairman of the Financial Services Authority, Adair Turner; the Bank's Executive Director for Financial Stability, Andy Haldane; and the Bank's Executive Director for Markets, Paul Fisher. The Chancellor has appointed four external members of the FPC: Alastair Clark, Michael Cohrs, Robert Jenkins and Donald Kohn. There are also two non-voting members: the Chief Executive designate of the Financial Conduct Authority, Martin Wheatley, who will take up his position in the autumn, and will become a full member of the statutory FPC; and a representative of the Treasury.

The establishment of the FPC is part of the wider reform of financial regulation. Macro-prudential regulation is one of the key elements of a renewed focus on assessing and reducing risks across the financial system as a whole. Another key element is the proposed reforms to micro-prudential regulation for individual firms, which include the establishment of a Prudential Regulation Authority within the Bank of England, once legislation has been enacted.

The Government’s consultation document states that the FPC will meet at least four times a year and will publish a record of its formal meetings. It will also be responsible for the Bank’s bi-annual Financial Stability Report.