More generally we are conscious that everything we do affects the trust and confidence in the Bank and by extension the financial system. Monetary and macroprudential policy The interaction between macroprudential and monetary policy is central to the Bank’s success in achieving its dual objectives of monetary and financial stability. The case for discharging these responsibilities in a coordinated way is very strong. I am delighted that Ben Broadbent has today been appointed as the next Deputy Governor for Monetary Policy. In that role, he will be central to co-ordinating these functions and his experience in academia, financial markets, and as an external Monetary Policy Committee (MPC) member, makes him extremely well qualified to do so. The transmission channels of monetary and prudential policy overlap, particularly in their impact on banks’ balance sheets and credit supply and demand – and hence the wider economy.8 Monetary policy affects the resilience of the financial system, and macroprudential policy tools that affect leverage influence credit growth and the wider economy. In turn, financial stability is a pre-requisite for monetary stability – for example systemic banking crises are likely to be deflationary. In reducing the frequency and severity of financial crises, macroprudential policy therefore helps to preserve the role of money as a store of value.9 While price and financial stability are clearly connected, achieving both can be difficult.
The model used for monetary policy of decisions being made by a committee made up of both Bank of England executives and independent experts has been expanded to financial stability with the creation of both a Financial Policy Committee and a Board of Prudential Regulation. As I have argued, those policy committees will be more effective if they have access to the broadest range of the Bank’s analysis and information and are as well informed as possible about each other’s reaction function. The now very wide range of the Bank’s responsibilities also creates a need to strengthen the oversight arrangements for the Bank as a whole. For delivery of our statutory objectives, the Bank is accountable to the public, through Parliament’s Treasury Committee. That accountability is being reinforced. Parliament has created an Oversight Committee of 8 non-executives who are in the Bank but not of the Bank. The Government has today announced the appointment of Anthony Habgood to lead the Bank’s Court of Directors and the Oversight Committee. I welcome the appointment of someone of his depth and breadth of corporate experience. Independent oversight by the committee he will chair can strengthen the Bank’s legitimacy and effectiveness. The Oversight Committee has access to internal papers, is able to observe meetings of policy committees, and is responsible for reviewing all aspects of the conduct of the Executive of the Bank, including the delivery of policy, the design of and adherence to rigorous processes and procedures, and the monitoring of our transparency and openness.