Secondly, due to the trade offs I described earlier, the government has proposed that the FPC be subject to a constraint that it should not act to preserve stability at the cost of significantly impairing the capacity of the financial sector to contribute to medium-to-long term economic growth. What this means in practice is that when faced with an immediate or incipient threat to stability, we must try to find a solution that avoids damage to long-term growth. That discipline is welcomed by the Bank. This is obviously all novel stuff. It is therefore helpful that the government plans to ask Parliament for a power periodically to flesh out the statutory objective, via a Remit from the Chancellor of the Exchequer – an arrangement that has worked well in the monetary field in the UK. It will enable practical lessons to be incorporated into the regime over time. Why is the UK’s macroprudential body separate from microsupervision? Most central banks have traditionally regarded their contribution to financial stability as deriving from their markets and banking supervision functions. That is explicit in the Federal Reserve’s 1913 statute, with which I began these remarks. And given the UK’s heavily concentrated banking system, effective banking supervision is obviously an essential precondition for preserving stability. But in terms of how organisations work in the real world, the flaw in relying entirely on this is that it assumes that those operational areas of the central bank will invariably make time and space to address the financial system as a system.
In particular, what does the MPC’s so-called forward guidance, which we announced in the summer, mean for you – the businessmen and women driving this recovery? And that’s the plan for today: to consider three key questions about the economic recovery that we’re now finally enjoying – why now, will it last, and what next for policy? 1  Securities and Investment Review, September 1993. BIS central bankers’ speeches  1  Why now? First, why now? Why after several years of frustration and disappointment has the economy begun to grow? It’s hard to be certain: this time last year we were not predicting such a sharp turnaround in growth and there’s a danger of appearing to be wise after the event. But, at least with the benefit of hindsight, two developments in particular seem important in driving the turnaround: an easing in credit conditions; and a reduction in economic uncertainty. Let me say a few words about each, starting with credit conditions. Improved credit availability Although it’s still patchy and there’s further to go, we’ve observed a marked improvement in the ability of many companies and households to access credit over the past 18 months or so. Some of that stems from a lessening of tensions within the euro area, which has helped to ease pressures on banks both sides of the channel.