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| Bank of England may get new powers to rein in banks | Bank of England may get new powers to rein in banks |
| (35 minutes later) | |
| The Bank of England is to review whether it needs more powers to control banks' balance sheets. | The Bank of England is to review whether it needs more powers to control banks' balance sheets. |
| Bank governor Mark Carney said Chancellor George Osborne had asked the Bank's Financial Policy Committee (FPC) to review its powers. | Bank governor Mark Carney said Chancellor George Osborne had asked the Bank's Financial Policy Committee (FPC) to review its powers. |
| The FPC regulates banks, but has no control over how much capital they must hold in relation to their total assets, the so-called leverage ratio. | The FPC regulates banks, but has no control over how much capital they must hold in relation to their total assets, the so-called leverage ratio. |
| Mr Carney said he personally felt the FPC should have this power. | Mr Carney said he personally felt the FPC should have this power. |
| Being able to vary the leverage ratio helps rein in risk-taking by banks. | Being able to vary the leverage ratio helps rein in risk-taking by banks. |
| The governor, formerly head of Canada's central bank, told the Treasury Committee on Tuesday that regulators in his home country had similar powers, and this had helped them during the global financial crisis. | The governor, formerly head of Canada's central bank, told the Treasury Committee on Tuesday that regulators in his home country had similar powers, and this had helped them during the global financial crisis. |
| 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." | |
| In a letter to Mr Carney, disclosed by the Treasury Committee, Mr Osborne wrote: "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." | In a letter to Mr Carney, disclosed by the Treasury Committee, Mr Osborne wrote: "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." |
| Mr Carney told the committee that he expected the FPC's review to take about a year, and hoped that new powers would be granted "quickly thereafter". | Mr Carney told the committee that he expected the FPC's review to take about a year, and hoped that new powers would be granted "quickly thereafter". |
| International regulators are already finalising details of a leverage ratio, although these may not come into force for several years. | |
| BBC business editor Robert Peston said: "The Bank of England hopes that the imposition of a leverage ratio will force banks to have a bigger buffer of loss-absorbing equity to protect them against the inevitable shocks that lie ahead. | |
| "The absence of a binding leverage ratio in places like the UK meant that in the boom years banks grew at a highly dangerous rate by loading up on those categories of loans and investments - such as mortgages and assorted bonds - which were deemed low-risk by short-sighted regulators." | "The absence of a binding leverage ratio in places like the UK meant that in the boom years banks grew at a highly dangerous rate by loading up on those categories of loans and investments - such as mortgages and assorted bonds - which were deemed low-risk by short-sighted regulators." |
| Interest rates | |
| Mr Carney also responded to criticism that his forward guidance on interest rates had created confusion. The Bank has said it will not consider an interest rate rise until UK unemployment falls below 7%, a rate that many economists now believe could happen sooner rather than later. | |
| But the governor said that 7% is a "threshold, not a trigger". | |
| 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, parliamentarians 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." | |
| On the economy, Mr Carney said that "all the elements" were in place for a pick-up in activity. |