FPC responds on remit and recommendations: Mark Carney, in his capacity as Chairman of FPC, has written to George Osborne responding to a letter outlining FPC's remit and other government recommendations. In addition to attaching FPC's formal response to the remit and recommendations, Mark Carney stated that:
- in FPC's view global risks to the outlook for financial stability in the UK remained elevated over the past year, and this year’s stress test scenario, which will be published on 30 March, will reflect this;
- FPC has two medium-term objectives linked to bank capital: establishing the medium-term capital framework and ending too-big-to-fail, which it will address in light of the Bank Recovery and Resolution Directive (BRRD);
- FPC's third medium-term objective is to ensure diverse and resilient market-based finance and so it will carry out its annual assessment of financial stability risks and regulation beyond the core banking system later this year;
- FPC remains concerned about the risk that market liquidity could prove fragile in stressed conditions, and judges that there is a need for market participants to be aware of these risks;
- FPC agrees with the Chancellor's view on the importance of ensuring the resilience of the core UK financial system and its infrastructure to cyber threat;
- FPC has set out its views on the powers of direction necessary to manage financial stability risks from leverage and the housing market in 2014, and welcomes that, following Parliamentary debate, instruments granting FPC powers of direction related to the leverage ratio framework and owner-occupied residential mortgage lending will now come into force with effect from 6 April;
- FPC welcomes the Government’s intention to consult on tools related to buy-to-let lending later in 2015;
- to enhance information sharing further, BoE announced in response to the Warsh Review that four joint briefing meetings of FPC and the Monetary Policy Committee would be scheduled in 2016; and
- FPC has continued to develop its working relationships with PRA and FCA.
FPC publishes policy meeting statement: FPC identified several policy issues for action, including:
- market liquidity risks, which include concerns that investment allocations and pricing of some securities may presume that asset sales can be performed in an environment of continuous market liquidity, although liquidity in some markets may have become more fragile - on this issue FPC has issued a list of matters on which it suggests BoE and FCA work together; and
- cyber risk, in particular the need for core firms and financial market infrastructures to address their resilience to cyber attack.
In light of its assessment of the outlook for financial stability, and the progress by UK banks in meeting new capital standards in advance of regulatory requirements, FPC is maintaining the countercyclical capital buffer (CCB) rate for UK exposures at 0%. Hong Kong’s recently-announced CCB rate of 0.625% on its banks’ domestic exposures will be reciprocated automatically from 27 January 2016. (Source:Financial Policy Committee statement from its Policy Meeting, 24 March 2015)