In short, the FPC and PRA have many different, independent policy decisions to make. Ensuring both financial stability and safety and soundness of firms, requires both policy sets. The issue is sometimes raised as to how systemic stability and safety and soundness interact – especially during or after a financial downturn, when defensive actions by financial firms may be pro-cyclical. This is perhaps the period when cooperation and communication between the committees comes to the fore most strikingly, and forward guidance on policy can be most effective and necessary. The FPC and MPC will want to make sure that the regulatory system is not pro-cyclical – they will want to avoid anything that reduces the capacity for credit creation when the wider economy needs most support from its financial sector. One might worry that supervisors would see the general relaxing of requirements – the use of capital and liquidity buffers – as weakening the safety and soundness of their firms. In fact, the PRA also needs to recognise the relevance of the economy-wide situation to its objectives. Weakness in the real economy in a general downturn is one of the biggest threats to the safety and soundness of firms, as it can lead to substantial impairment of asset values. More than this, the consideration of capital and liquidity is more subtle than many people seem to appreciate. It is often asserted that requiring firms to hold more capital automatically reduces the capacity to lend. That is not the case.
•  The MPC’s objective is to deliver price stability – defined by the Government’s inflation target of 2% – and, subject to that, to support the Government’s economic objectives including those for growth and employment. •  The FPC’s objective is to protect and enhance the stability of the financial system of the UK – and, subject to that, to support the Government’s economic objectives including those for growth and employment. 1  See for example, R Bryant (1995) International Coordination of National Stabilization Policies. Brookings, Washington, and the many references therein. 2  See for example some of the material in N Acocella, G Di Bartolomeo and A J Hughes Hallett (2013), The Theory of Economic Policy in a Strategic Context, Cambridge University Press, Cambridge. BIS central bankers’ speeches  1  •  The PRA has two statutory objectives: to promote the safety and soundness of deposit takers, insurers and major investment firms and, specifically for insurers, to contribute to the securing of an appropriate degree of protection for policyholders. It also has a secondary objective, to facilitate effective competition in the markets for services provided by PRA-authorised firms. The PRA Board The PRA Board is the least well known of the 3 committees and so I want to say a few words about how it operates. I have been attending as an observer since I moved to the PRA on 1 June.