The Bank of England is set to evaluate current economic proceedings and determine whether it requires a greater degree of power in bank regulation, according to MoneyExpert.
It is believed that the Chancellor of the Exchequer, George Osborne, will lobby the Bank’s Financial Policy Committee, to evaluate their current powers and look to expand them if necessary.
The committee currently monitors the activity of banks, but has no power in regulating their leverage ratios. Last week, Mr Osborne sent a letter to Mr Carney citing: “Now is an appropriate time for the FPC to consider whether and when it needs any additional powers of direction over the leverage ratio, how it should use these powers and how any new powers would fit in with the rest of its macro-prudential tool-kit.”
Bank governor, Mark Carney, has identified his belief that there should be an extension of the committee’s powers. Mr Carney pointed to measures taken in his native country of Canada as an example of how increased committee power could have a positive effect on the overall economy
He said: “If I could pick one element that was essential to the performance of the Canadian banking system during the crisis, it was the presence of a leverage ratio.”
Mr Carney has outlined that he believes the committee will eventually agree with him, and expects the committee to experience the augmentation of their powers within a year from now.
He also chimed in on his opinion about bank conduct, arguing: “I think the first thing on too big to fail is there is a fundamental question of fairness about accomplishing this objective,” Carney said.
He added: “So irrespective of the impact on the size of the City, it is fundamentally a question of fairness to ensure that if an institution makes a mistake, just like if a small business person makes a mistake or is hit by adverse trading conditions, that institution bears the full consequences of that.
“And we do need to do a number of complex things in order to make that true”.
The news comes during an intense period of debate about interest rates, following Mr Carney’s revelation that the bank might increase interest rates quicker than expected.
Initial forecasts suggested that they would not rise until unemployment dropped to below 7%, which was expected around late 2016. However, recent data has indicated that this could be achieved far earlier, with 2015 being the likely period for a rise to take place now.
However, Mr Carney has played down speculation this week, arguing that the 7% is not a concrete threshold but more of a guideline.
He said: “The exact timing of when that 7% threshold will be achieved is subject to uncertainty. We do our best to give our estimates of that uncertainty… One month’s unemployment figures does not have a material change on those likelihoods.”
“What the guidance is doing is giving businesses, households, financial market participants, and parliamentarian’s perspective on the conditions that are necessary to exist in the economy before the MPC [Monetary Policy Committee] would consider adjusting monetary policy, tightening monetary policy – in shorthand, raising interest rates.”