Bank of England now responsible for financial stability

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LONDON – Alastair Darling, during his annual Mansion House speech, has announced plans to create a permanent Financial Stability Committee (FSC) that will sit alongside the Monetary Policy Committee (MPC) to monitor the health of the City of London. Although the Financial Services Authority (FSA) will remain the sole banking supervisor, the Bank of England will now be responsible for the stability of the financial system as a whole.

The FSC will be set detailed objectives similar to the MPC inflation targets and will hold the central bank’s financial executives to account over the financial stability of the country through the establishment of a new Financial Stability Committee of the Court. The proposals will be included in the Banking Reform bill being introduced later this year.

Also set out in the Chancellor’s proposals is the provision of a range of tools for the Bank of England to enable it to carry out its new areas of responsibility, including playing a leading role in the implementation of the new special resolution regime (SRR), should it be triggered by the FSA, including powers related to deploying and implementing the SRR tools.

“The wider reforms I am announcing today will ensure the Bank of England will in future have a much enhanced role in the preservation of financial stability,” said the Chancellor at Mansion House. “Taken together, these measures represent a major reform equipping us to deal with the challenges we face, and in particular giving the Bank of England and the FSA the mandate, the responsibility and the accountability to discharge the vital duty of ensuring financial stability.”

John Gieve is stepping down early as deputy governor of the Bank of England but will continue in the job to lead the reform process.

Meanwhile, Charles Bean, the current executive director and chief economist at the Bank of England is replacing the outgoing Rachel Lomax as deputy governor for monetary stability on a five-year contract commencing on July 1, 2008.