Osborne's BOE Policy Regime Inspires Surprise Plea by Broadbent

(Bloomberg) -- In his defense of the Bank of England’s decision-making arrangements, Deputy Governor Ben Broadbent has answered a question few were asking very loudly.

On Thursday, Broadbent made a surprise plea for the continued separation of the Monetary Policy Committee and the Financial Policy Committee, saying that while coordination between the two is important, each pursue different goals.

The FPC was a creation of former Chancellor of the Exchequer George Osborne, empowered to use so-called macroprudential tools to foster financial stability, as opposed to the MPC and its use of interest rates to target inflation. There have been few meaningful attempts in recent years to argue for a merger, raising the possibility that Broadbent’s comments are partly pre-emptive or reflective of closed-door discussions.

“Ever since the FPC has been set up there have been nagging questions about whether its objectives were carefully specified enough,” said Tony Yates, a former senior adviser at the BOE. “I do think they need to more explicitly coordinate with each other and communicate about how they’re coordinating with each other.”

In a footnote, Broadbent referenced only previous calls from former officials Howard Davies and Sushil Wadhwani, including some by the latter in 2012, as the panel was being formed. Former Deputy Governor John Gieve made remarks on the matter at the time too. “The case for a merger is still being made,” Broadbent added.

Mounting Risks

Broadbent, who sits on both the committees, told an audience in Australia that a single panel would run the risk of overly focusing on the more measurable targets of the MPC. That panel is widely expected to hike interest rates next month, a move with corresponding spillovers on the remit of the FPC, which has expressed concerns about the growth of personal indebtedness.

While there is a perception that risks are mounting, the FPC doesn’t “want to interfere with the MPC’s normalization strategy,” Yates said.

The FPC went live in 2013 amid much fanfare as part of Britain’s efforts to reform regulation and prevent a repeat of the crisis that saw some banks collapse and others bailed out. It made waves with a clampdown on mortgage lending the next year but has since largely dropped off the public radar.

The issue of separation was raised by Parliament’s Treasury Committee under the leadership of Andrew Tyrie. Spencer Dale, a member of both the FPC and MPC, was asked about it in 2014. A year earlier, then Governor Mervyn King said there may be an argument for a merger “down the road,” although such talk was “premature.” He added, perhaps presciently:

“Maybe in five or six years it will be time to come back to look at that.”

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