The outcomes are the same whether their policies are set separately or jointly. To many of you that might seem obvious (less immediately to me, I must confess). And if there’s any reason at all to keep the two functions apart it would rather defeat the purpose simply to give them the same, overarching remit. If the MPC and FPC were both made responsible for inflation control, stabilising demand and financial stability, that’s a merger by default. But the result does provide some intuition as to why you can get closer to the full co-ordination outcome – and in some cases replicate it exactly – by a judicious mapping of the overall objectives across the two committees. If, for example, you thought that some macro-prudential measures had important spillover effects on aggregate demand, then you can get closer to the co-operative outcome simply by supplementing the remit of the macro-prudential authority with the equivalent secondary objective. You ask the FPC to think not just about financial stability but also to take into account the effects of its policies on economic activity. The spillovers are then internalised and, under some circumstances, you can mimic precisely the full coordination regime. As I say, I do not believe these effects are in fact that powerful or, therefore, that the secondary objective will come into play very often. But it’s worth pointing out that the FPC’s remit was expanded in exactly this way when the Committee was put on formal statutory footing in 2012.
Armed with the whole array of price and quantity indicators of 12  The observer updates her distribution over the probability using Bayes’ law. Chart 9 is the mean of that updated distribution as a function of the number of years of data that the agent has observed. 12  All speeches are available online at www.bankofengland.co.uk/speeches  12  risk we – and others – can make informed judgements about the right level of loss-absorbing capital in the banking system and about the appropriateness of more targeted policy tools. And if it takes time to demonstrate decisively a reduction in system-wide risk, there are some policies whose effects are more immediately obvious. In 2014, responding to concerns about growth in riskier mortgages, the FPC introduced limits on the share of banks’ mortgage lending at high (>4.5) loan-to-income ratios. Recently, the committee noted that there’s since been quite a bit of “bunching” in new loans just below this limit. I’m not so sure this is a problem: for my part I see it mainly as clear and timely evidence that the policy has had an impact. The point remains, however, that the FPC’s objective is inevitably less precise, and its success less immediately measurable, than that of the MPC. Recalling the results of the analysis I discussed at the start of the talk, on the appropriate allocation of tasks, this suggests that there might well be a cost if you asked a single body – an “FMPC” – to meet all these objectives at once.