LONDON (Reuters) - The Bank of England has not overstepped the mark in regulating lenders and interventions in politically sensitive sectors like housing have been modest rather than revolutionary, a BoE policymaker said on Tuesday.
Martin Taylor described the Bank’s Financial Policy Committee on which he sits as a “committee of public safety”, a nod to the government of 18th-century revolutionary France that ushered in the “Reign of Terror” to maintain stability.
“The FPC in its almost five years of existence... may have been more circumspect than its Parisian forerunner but has nevertheless shown real determination to use macroprudential policy tools in a disciplined and effective manner,” Taylor said in a speech in London.
The aim of the FPC is to spot risks from destabilising the financial system after central bankers failed to see the 2007-09 banking meltdown coming.
But it has faced criticism from British lawmakers for not explaining properly what it does when it steps into politically sensitive areas like housing and consumer credit.
Some of its members have made very few speeches.
Taylor, an external FPC member, noted that Brian Griffiths, an international adviser to Goldman Sachs bank, called in May for the FPC to be abolished because it would fail to predict the next financial crisis, and that intervention in the housing market would create winners and losers.
In a spirited defence of the committee, Taylor said the FPC’s “modest interventions” in 2014 and this year to prevent the mortgage and consumer credit markets overheating were “technical” in nature.
“It might surprise some observers of the FPC to learn how much time we spend asking ourselves whether in a given situation we have the right to intervene between willing borrowers and willing lenders,” Taylor said.
“We may not be able to avoid crises, but we certainly ought to be able to prevent the financial system from amplifying a crisis as it did in 2008.”
Banks have accused the FPC of piling on capital requirements, but Taylor said it was adopting a balanced approach by taking into account other reforms such as a requirement for the high street arms of lenders to be separated from risky investment banking by 2019.
Without this, the FPC would “feel the need” to increase core capital requirements for banks by about 500 basis points.
“Those who consider the present system onerous should reflect on this point,” said Taylor, a former bank CEO. “I don’t believe financial regulation has gone too far. No way.”
Reporting by Huw Jones; editing by Mark Heinrich