The Government wants to amend the Financial Services Bill to give the Financial Policy Committee a secondary objective to work in a way that supports the Treasury’s economic policy.
The FPC will sit in the Bank of England alongside the Monetary Policy Committee and use macro-prudential levers to take action against emerging threats to financial stability.
Last night, Chancellor George Osborne told Mansion House in his annual speech that the FPC will have to report to the Treasury on how the use of its levers supports the department’s work.
He said: “Supportive monetary and financial conditions are a core part of our strategy, so we must prevent an unplanned tightening undermining the recovery.
“I see an important role here for the new Financial Policy Committee in ensuring that capital and liquidity regimes balance the need for strong banks with the need to avoid a pro-cyclical tightening of financial conditions.”
“That is what I meant last year when I said we are not seeking the stability of a graveyard.”