The role, tools, membership and accountability of the Financial Policy Committee all need further consideration, according to the Treasury select committee’s report on financial regulation.
Under the new regulatory structure to be introduced in 2013, the FPC will sit within the Bank of England and will monitor the economy, with a focus on macro-economic and financial issues that may threaten stability.
Bank of England governor Mervyn King will chair the committee, which will report to the Government.
The TSC says the FPC needs to be given a financial stability target, similar to the MPC’s inflation target. It also warns that the tools the FPC and the monetary policy committee will use could interact in unexpected ways and could affect each other’s objective. It adds the current balance of external to internal members, four to seven, needs to be improved to help ensure the committee does not “succumb to groupthink”.
The report praises the Bank of England’s historical commitment to transparency but says attention needs to be paid to how the FPC’s “considerable” economic policy powers are monitored.
Committee chairman Andrew Tyrie says: “Such a large transfer of power necessitates robust accountability. There is a clear structure by which the MPC is held accountable. The structure for the FPC will differ from the MPC but it is of no less importance.”