The Financial Policy Committee of the Bank of England, the FPC, has the task of identifying, monitoring and taking action to remove or reduce risks with a view to protecting and enhancing the resilience of the financial system in the UK. These risks at the level of the system can include those arising from structural features of financial markets, from the distribution of risk within the financial system, and from unsustainable levels of leverage, debt or credit growth. The emphasis here is very clearly on ensuring the resilience of the financial system. But our objective is not to achieve resilience at any cost – our actions must not have a significant adverse effect on the capacity of the financial sector to contribute to the growth of the UK economy in the medium or long term. Moreover, and here you will recognise the symmetry with the objectives of the MPC, the legislation provides that, subject to achieving our primary objective for financial stability – resilience – the FPC must also support “the economic policy of Her Majesty’s Government, including its objectives for growth and employment”. The reforms have also created the new Prudential Regulation Authority as part of the Bank of England. Here, the statutory objective of the microprudential regulator is the safety and soundness of the firms which we prudentially regulate – banks, insurers and major investment firms. Moreover, our objective of safety and soundness sits in the context of the stability of the financial system. What does that mean?
Andrew Bailey: Challenges of prudential regulation Speech by Mr Andrew Bailey, Deputy Governor of Prudential Regulation and Chief Executive Officer of the Prudential Regulation Authority at the Bank of England, at the Society of Business Economists Annual Dinner, London, 3 June 2013. *  *  *  Thank you for inviting me this evening – it is a great pleasure to have this opportunity and particularly at a time when we are embarking on major reforms to policymaking in the area of financial regulation. The financial crisis has provided hard lessons on what happens when the stability of the financial system is found wanting. It has reminded us how much we depend upon the supply of critical services from banks, insurers, investment firms, asset managers and other parts of the financial sector. If you take the banks as Exhibit One, there is good reason to curse them, but at the same time recent experiences have only served to emphasise how much we depend upon them, like it or not. The new legislation on financial regulation in the UK emphasises the importance of the continuity of supply of critical financial services. This is a permanent public policy objective, and rightly so. I use the term “permanent” deliberately to distinguish this objective from the support provided by Too Big / Important to Fail, which should not be permanent.