15 Jul 2014
BoE's Carney: Timing of first rate hike dependent on economic data
FXStreet (Łódź) - BoE governor Mark Carney, who appeared before the British Parliament to testify on the June financial stability report, gave more details about the recommended tighter controls on banks.
The BoE head suggested that a potential higher leverage ratio would have the most pronounced effect on building societies and investment banks and that it would strengthen the financial sector. He also insisted that the leverage ratio was not a backstop but an integral part of bank capital framework.
Financial Policy Committee external member Donald Kohn defended the idea of a time-varying leverage ratio, saying that it's a better solution to adjust the ratio depending on macroeconomic conditions, instead of keeping it flat.
"I would be concerned if we, the FPC, saw a reason to raise capital requirements in the system and the leverage ratio didn't also rise," Kohn argued.
Martin Taylor, another external FPC member added that he didn't consider it right to say that "the leverage ratio pushes banks to hold riskier assets."
Mark Carney also commented on the idea that the Monetary Policy Committee and Financial Policy Committee should be merged saying that "the mix of expertise that is needed for the FPC to function effectively requires some specialist skills that may not be fully applicable to the MPC."
"The second thing is there are distinct remits here," he added.
Finally, Carney signaled that the central bank was not yet sure when would the rates start to rise, as that would be dependent on economic data and said that UK inflation expectations were extremely well anchored.
The BoE head suggested that a potential higher leverage ratio would have the most pronounced effect on building societies and investment banks and that it would strengthen the financial sector. He also insisted that the leverage ratio was not a backstop but an integral part of bank capital framework.
Financial Policy Committee external member Donald Kohn defended the idea of a time-varying leverage ratio, saying that it's a better solution to adjust the ratio depending on macroeconomic conditions, instead of keeping it flat.
"I would be concerned if we, the FPC, saw a reason to raise capital requirements in the system and the leverage ratio didn't also rise," Kohn argued.
Martin Taylor, another external FPC member added that he didn't consider it right to say that "the leverage ratio pushes banks to hold riskier assets."
Mark Carney also commented on the idea that the Monetary Policy Committee and Financial Policy Committee should be merged saying that "the mix of expertise that is needed for the FPC to function effectively requires some specialist skills that may not be fully applicable to the MPC."
"The second thing is there are distinct remits here," he added.
Finally, Carney signaled that the central bank was not yet sure when would the rates start to rise, as that would be dependent on economic data and said that UK inflation expectations were extremely well anchored.