The Board is constituted in a similar way to the other committees in that it is chaired by the Governor and has both internal executive members and externally appointed independent members. On the basis of current announcements it will have a total of 5 internal members 3, and 6 independent members 4 including the CEO of the Financial Conduct Authority (FCA). It meets approximately twice a month for formal meetings. In summary, the Board is responsible for meeting the PRA’s statutory objectives, including taking all the major supervisory decisions for the 1700 or so firms and groups it authorizes; formulates regulatory policy to meet those objectives; and has a range of strategic and management responsibilities including delegating some matters, principally to the CEO of the PRA or to formal PRA committees. Matters reserved to the Board and its delegations can be found in documentation on the Bank’s website via a link in this text. 5 In what follows I shall treat the PRA Board and the PRA as one policy making body, referring to one or the other as best fits the context. Before moving on, it is worth completing the picture by noting that the PRA works alongside the FCA, creating what is known as a “twin peaks” regulatory structure in the UK. The FCA is a separate institution and not part of the Bank of England.
The key to solving this policy dilemma is to make sure that firms hold enough liquidity (and capital) in the good times so that, when a downturn hits, supervisors can take a relaxed view about firms using those holdings as buffers to absorb the macro shock. That was not the position post 2008/09 when banks had not been holding enough liquidity or capital in the good times. It is an aim of the new regulatory frameworks put in place post-crisis, that banks should hold bigger liquidity buffers in normal times. The Bank of England’s balance sheet can also be used actively to backstop liquidity for the system as a whole, via the banking system, and the new operating frameworks put in place over the past 5 years will allow that to happen more quickly and easily. How will this all co-ordinate in practice? When the Bank, HMT and FSA took joint action in 2012 to reignite the recovery via the Funding for Lending Scheme – reviewed in my two previous talks to you – the FSA, as predecessor to the PRA and having two members on the interim FPC, contributed by relaxing liquidity requirements and making it clear that liquidity buffers were there to be used. This was a crucial element of the package.