Chairman of BoE’s financial policy committee (FPC), Mark Carney wrote a letter to Chancellor George Osborne which stated that the committee had two primary roles, one to monitor and react to risks in the financial system and the second, to support the government’s economic policy.
Carney wrote in his letter: "The Committee will assess the cumulative effects of reforms to make the financial system more resilient and consider whether in aggregate they have unintended undesirable effects.
"Where appropriate, the Committee will consider whether the improvements in resilience from those reforms could be achieved in ways that are further supportive of strong, sustained and balanced growth."
The bank will further examine the risks raised by liquidity drying up in markets and study the possible risks by non-banks like investment funds and hedge funds.
"The progress made in fixing the fault lines in the banking system means that the Committee is now more able to broaden its focus to potential risks emanating from and associated with non-bank activities.
"A broad agenda encompassing non-banks is necessary to ensure that any potential systemic risks from market-based finance are identified and also that risks do not migrate from one part of the financial system to another."
Image: The Bank of England headquarters in London. Photo: courtesy of David Iliff.
