Setting the Financial Policy Committee’s first remit, Osborne said the central bank must acknowledge the economic cycle when setting policy. He also said there is a need for “clear” communications to win the confidence of financial markets and called for a list of risks by the end of the year.
“Even if individual firms are believed to be sound, when their activities are considered in aggregate, risks to the whole system can emerge,” Osborne said in a statement released by his office in London today. “The Financial Policy Committee is now charged with identifying, monitoring and addressing risks to the financial system as a whole.”
Osborne shut the previous financial regulator and gave most of its powers to the BOE to overhaul regulation which, he says, failed in part because the structure wasn’t adequate. Under the new Financial Services Act, Osborne has the power to set the FPC’s objectives and how it should operate in order to support the government’s economic policies.
“The remit and recommendations for the committee recognizes that there may be short-term tradeoffs between the committee’s second objective of contributing toward sustaining economic growth and its primary objective of addressing sources of systemic risk, which may vary at different points in the economic and credit cycle,” Osborne said. “It is particularly important at this stage of the cycle that the committee takes into account, and gives due weight to, the impact of its action on the near-term economic recovery.”
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