United Kingdom Parliament Treasury Committee Update: Bank Of England Correspondence About Disagreement Between Vickers And FPC

• Letter from Mark Carney, Governor, Bank of England, to Rt Hon Andrew Tyrie MP, 5 April 2016 ( PDF 5.9 MB)
• Treasury Committee

Chair's comments

Commenting on the correspondence, Mr Tyrie said:

"Almost three years ago, the Parliamentary Commission on Banking Standards (PCBS) – concurring with many others - concluded that the levels of bank capital prior to the crisis had been thoroughly inadequate and the Basel framework was deeply flawed. The Commission also concluded that the government’s proposals for remedy, among them a 3 per cent leverage ratio, were insufficient.

The PCBS took the view that the banks would have a strong incentive to game these inevitably complex rules. The Parliamentary Commission concluded that, in order to inhibit this, the Bank of England’s powers would need to be strengthened beyond the original set of proposals set out by the government. The PCBS recommended the electrification of the ring-fence – that is, a specific power to enable the regulators to restructure banking groups.

A central recommendation of the PCBS, subsequently endorsed by the Treasury Committee, was that powers to set the leverage ratio, as with powers over capital levels, should not sit with the Government but with the Bank of England – in practice the Financial Policy Committee (FPC). The government subsequently agreed to this transfer of responsibilities.

Robust levels of capital are as important now as they were a decade ago. These complex issues will remain a source of controversy. The exchanges between the Bank and Sir John Vickers reflect this.

The Treasury Committee will initiate further work on UK capital standards and invite written evidence. Further details of the inquiry will be published shortly."

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees

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