Second, at the time of the action, the FPC did not have powers of direction in relation to borrower focussed macro-prudential risks. The Committee’s powers of direction were confined to bank capital. The FPC’s actions in 2014 took the form of recommendations to the PRA and FCA under the Committee’s general recommendation powers. In response to a request from the Chancellor of the Exchequer to review its powers in relation to the housing and mortgage market and advise on whether any changes were necessary, later in 2014 the Committee recommended that it be given the power of direction in relation to debt to income and loan to value.23 Parliament approved these new powers for the owner-occupier market in 2015. Conclusion  There has, since the crisis, been a lively and often intense debate about the most appropriate allocation of macro-prudential responsibilities and powers between authorities in different jurisdictions. There is also currently a debate in train about the powers and responsibilities of central banks in different fields, including macro-prudential policy. That is a subject for another, probably longer, speech. I would only point out that no matter how responsibilities are organised, there needs to be some mechanism for assessing and addressing the macro prudential risks that can flow from borrower balance sheets. And that if this responsibility is allocated to a technocratic as opposed to a political authority, it is particularly imperative that there is maximum transparency and accountability around that authority’s approach and justification for action.
(a) The 2018 H2 counterfactual for stock LTI ratios takes the 2018 H2 distribution shown in Chart 3 and removes the estimated impact of FPC policy on the flow of new lending to date. The impact of FPC policy is estimated with a combination of model outputs and analysis of trends in high LTI lending over time. Assessing what could have happened if we had not introduced these policies, or if the macro environment was different, is more difficult. But we can use the models to look at some counterfactuals, the ‘what ifs’ – modelling the stock under different macroeconomic scenarios and assumptions about lender and borrower behaviour and FPC policy.22 House prices and mortgage activity have been relatively subdued over the past 5 years – with house price and income growth slightly lower than the central forecast prior to the introduction of housing tools in 2014 and markedly fewer housing transactions than we were expecting. So the policy impact – both costs and benefits – have been relatively small to date. What would mortgage indebtedness look like if the policy hadn’t been there: if house prices, and activity, had followed the paths they actually followed but the FPC policies had not been in place? We can estimate the distribution of LTI in the stock of borrowers today if the 22  See Levina et al (2019) for more detail on methodology. 10  All speeches are available online at www.bankofengland.co.uk/news/speeches  10  policies had not been in place.