BIS central bankers’ speeches  13  References Aiyar, S, Calomiris, C and Wieladek, T (2012) “Does macropru leak? Evidence from a UK policy experiment” Bank of England Working Paper No. 445. Bean, C (2003) “Asset prices, financial imbalances and monetary policy: are inflation targets enough?” in A Richards and T Robinson (eds.) Asset Prices and Monetary Policy, 48–76. Reserve Bank of Australia: Sydney. Bean, C (2010) “The Great Moderation, the Great Panic and the Great Contraction”, Journal of the European Economic Association, April–May. Bean, C, Paustian, M, Penalver, A and Taylor, T (2011) “Monetary Policy after the Fall”, in Macroeconomic Challenges: The Decade Ahead, Federal Reserve Bank of Kansas City. Broadbent, B (2012) “Deconstruction”, Speech given at Lancaster University Management School. Dixit, A and Pindyck, R (1994) Investment under Uncertainty, Princeton University Press. Eggertsson, G and Woodford, M (2003) “The Zero Bound on Interest Rates and Optimal Monetary Policy”, Brookings Papers on Economic Activity, 1. Gagnon, J, Raskin, M, Remache, J and Sack, B (2011) “The Financial Market Effects of the Federal Reserve’s Large-Scale Asset Purchases”, International Journal of Central Banking, 7(1). Greenspan, A (2002) “Opening Remarks” in Rethinking Stabilization Policy, Federal Reserve Bank of Kansas City. Haldane, A and Madouros, V (2012) “The dog and the frisbee”, Speech given at the Federal Reserve Bank of Kansas City’s 36th economic policy symposium. HM Treasury (2012) “The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools”, available at www.hm-treasury.gov.uk/d/condoc_fpc_tools_ 180912.pdf. IMF (2009) World Economic Outlook April 2009.
Such recommendations might be called for if there are structural developments – for instance, new financial instruments – taking place in the financial system that appear to increase the risk of financial instability. Second, once the Act has come into force, the FPC will be able to direct the prudential regulator to implement changes to a small set of instruments in order to achieve its objectives. On the basis of advice from the FPC, the Treasury is presently consulting on those instruments (HM Treasury, 2012). As it stands, the current proposals include three tools. First, there is a countercyclical capital buffer. Under the Basel III capital framework, banks will be required to hold a higher level of bank capital relative to their risk-weighted assets. But national regulators will be able to require an additional time-varying buffer that can be increased during the upswing of the credit cycle and released during the downswing. Under Basel III, the countercyclical capital buffer will be phased in from the beginning of 2016, becoming fully effective only at the start of 2019. But the Government has said that it plans to use whatever flexibility is available to give the FPC power over the buffer as soon as is practicable. There are two ways that such an additional capital buffer mitigates systemic risks. First, it provides a larger cushion against potential losses, so providing greater resilience in the face of a bust.