Its first order challenge would be to reach a judgment on whether the financial system was undermining its own resilience by getting carried away in extending credit in an environment of rising asset prices and optimism about future output levels. The FPC would need neither to obstruct an improvement in the underlying performance of the economy, nor let the party get out of control. But that is what Taking Away the Punchbowl is about. The same difficult judgments would face a combined monetary-and-macroprudential decision maker. And a separate monetary policymaker would have a shared interest in the downside risks to inflation not being exacerbated by the prospect of a credit bust following an unchecked boom. In those kind of circumstances, we should be helped by the tempo of the two endeavours differing. The FPC is less likely to make frequent course changes. That is reflected in its meeting routinely on a quarterly basis, contrasting with the MPC’s monthly meetings. So, as in the relationship between monetary policy and fiscal policy, the MPC will be able to take into account perturbations to aggregate demand from the FPCs interventions. Both committees are part of the Bank of England, so the executive of the Bank will ensure that there is a common information base. FPC members are invited to the monthly briefing for MPC members. And vice versa, consistent with MPC members already being free to attend the internal financial stability briefings established over the past year or so.
The international dimension I have discussed the interaction of the UK’s macroprudential regime with our domestic arrangements for microsupervision and for monetary policy. But the third set of interactions will be with our counterparts in other countries. This is especially important to the UK. London hosts what is probably the world’s most international financial centre. Crucially for us, it is not an entrepot. It is more than an important source of jobs and tax revenues. Many of the overseas firms active in the City are also active in providing services to parts of the UK’s real economy. We therefore have a double stake in their safety and soundness. If they get into distress, there are spillovers to UK financial firms through wholesale markets, but also at least a temporary reduction in the financial services available to UK firms and households. For all these reasons, the UK has a special stake in the adequacy of international standards for financial firms and markets. And, hosting many subsidiaries of major global firms, our supervisors need to play a special role in the collective consolidated supervision of internationally Systemically Important Financial Institutions (SIFIs). This extends into the macroprudential arena. At a global level, we are active participants in the Financial Stability Board. And, regionally, the UK authorities will be engaged in the European Supervisory Authorities. Our Governor is first Vice Chairman of the European Systemic Risk Board (on which I and Adair Turner, Chairman of the FSA, also sit).