The Financial Policy Committee (FPC) has published its formal response to an earlier letter from the Chancellor concerning its remit. The FPC’s response covers its objectives, its programme of work and its approach to communication and external consultation.
In relation to its work programme the FPC states that its framework for the leverage ratio for UK banks and building societies has been agreed. By the end of the year, international standards for total loss absorbing capacity for global systemically important banks will be established and the process of implementing European requirements on loss absorbing capacity will have begun. The Bank of England (BoE) will publish in the autumn additional details on its approach to making banks more resolvable, as part of implementing agreed reforms, by consulting on:
- minimum requirements for own funds and eligible liabilities; and
- aspects of implementing structural reform initiatives previously launched.
The FPC will also conclude the design and calibration phase of its own work on the capital framework for UK banks later in Q4 by:
- reviewing the overall calibration of the capital framework and clarifying the role of the buffers within that framework;
- establishing the criteria and methodology for the systemic risk buffer that will be applied to ring fenced banks and large building societies; and
- clarifying the future direction of stress testing, working jointly with the board of the PRA.
The letter also notes that:
- in September the FPC will discuss the full report on market liquidity that it commissioned from the BoE and FCA staff at its March 2015 meeting; and
- the FPC will also review a number of activities in the non-bank financial system over the next year, to consider potential systemic risks posed by: the investment activities of open-ended investment funds and hedge funds; securities financing transactions; the non-traditional, non-insurance and investment activities of insurance companies; and derivative transactions. These reviews will complement the FPC’s annual stocktake of risks outside the core banking system.
View FPC letter to Chancellor concerning its remit, 11 August 2015