Financial Policy Committee

The Financial Policy committee is charged by the government  to overlook macroprudential risks in the financial system.  The government is rightly concerned with the sustained heightened systematic risks in the financial sector and therefore this committee is looking at ways to advise the regulators and banks on what has proven to be the weak link in during the financial crises.  

The  Committee is being 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 three of the four planned external members of the interim FPC: Alastair Clark, Michael Cohrs, 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.

 Reading the names above, it seems a list of the who's who of the financial sector administration and regulators in the UK. Hopefully they will get something concrete accomplished. This body, however, doesn't have official sanction from the parliment. Therefore it is an Interim committee mostly restricting it self to reviewing the financial situation and issuing recommendations through the product of their group discussions. 

This committee does have the ability navigate the muddy waters of the European bonds situation and steer to fairer waters for the banking industry in general. However, one cannot help but look at the committee and think that instead of creating change in the culture and method of business in most financial institutions the government is insisting on having more discussions and creating more bodies to have those discussions in.  Creating more regulators or supervisors of is not the solution to the crises, until you except that the current banking model is inherently susceptible to financial crises due to its debt driven nature.

Conversely, this committee is destined to be supervisor of the regulators. It gives more power to the Bank of England and lets the world know that Britain is Serious about Banking Reform. 

Their recent publication of their first meeting showed that they are indeed taking a broad view on each of the macro prudential issues in the current environment.  They have so far recommended to the banks that they save more capital in time on healthier profits in order to meet the higher capital requirements. Advised the FSA to report on the major banks exposures and make it a regular feature in their oversight. They also advised the FSA to compile data on the current sovereign and banking sector exposure of UK banks not subject to the EBA stress test and extend its review of the banks provisioning practices in terms of both household and corporate sector exposures on a global basis. They also encouraged the FSA to keep a keener eye on opaque funding structures employed by ETF’s.

This Committee can be the conduit of change for financial reform which is much needed in the country, if they make courageous decisions in terms of restructuring financial institutions and regulation in general.