That of course is true of all FPC policies but clear, regular public communication of the costs and benefits of macroprudential policies is particularly important in this area given the more direct focus on households as opposed to banks. The evolving evidence base for the tools  First, the evidence base. Since the FPC introduced the borrower-based tools, there has been further work by central banks and academics on this link between debt and reduction of consumption in stress. Some of this work adds to the evidence we already had. There is now more evidence that higher household debt is associated with bigger consumption cuts in a shock. 12  As set out in Section 9C of the Bank of England Act 1998, as amended by the Financial Services Act 2012: The responsibility of the Committee in relation to the achievement by the Bank of the Financial Stability Objective relates primarily to the identification of, monitoring of, and taking of action to remove or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system. Those systemic risks include, in particular— (a) systemic risks attributable to structural features of financial markets, such as connections between financial institutions, (b) systemic risks attributable to the distribution of risk within the financial sector, and (c) unsustainable levels of leverage, debt or credit growth. The FPC was subsequently – in 2015-16 – given explicit powers of direction over LTV and DTI limits.
This is likely to be particularly true when there is increased uncertainty about unemployment.15  The literature suggests that both channels can be important. For example, Danish research finds evidence in favour of over-consumption in Denmark over 2003 to 2009.16 This captures consumption financed by mortgage equity withdrawal or second mortgages, although the results may in part be driven by consumer credit, as the study does not distinguish between mortgage debt and consumer credit. The authors of the study think of the subsequent cuts in consumption as ‘spending normalisation’. In the UK, however, research shows that a credit availability channel is best able to explain the historical movement between leverage and consumption.17 And studies in the US point to a range of channels, including credit availability and liquid assets.18  This variation in findings is not surprising. One would expect the channels to vary over time and across countries. But what does it mean for policy? 13  For example Andersen et al (2016), Kovacs et al (2018), Dynan and Edelberg (2013) and Fagereng and Halvorsen (2016). For example Bridges et al (2017) and Jorda et al (2016). For example, in Japan, Nakajima (2018) finds that precautionary saving – in particular due to concerns about potential unemployment and old age – played a significant role in explaining consumption cuts by highly indebted households. 16 Andersen et al (2016). 17 Kovacs et al (2018). 18 Dynan and Edelberger (2013) and Baker (2018).