Treasury to grant new powers to Bank of England and FSA
The Treasury is to rule out overhauling the Bank of England's inflation-busting target and will instead give the Bank and Financial Services Authority new, separate powers to control British financiers' balance sheets.
In the forthcoming White Paper on financial services, expected later this month, the Treasury will acknowledge that many experts have been calling for the Bank's Monetary Policy Committee to be given a new remit to target asset prices alongside inflation. However, the Treasury will dismiss this option, warning that wholesale changes to the monetary policy framework will prove too risky for the wider economy, The Sunday Telegraph has learned.
The decision is likely to reassure those in the markets who fret that, just as in the wake of Black Wednesday and the collapse of the Exchange Rate Mechanism, the authorities are considering a shift to a completely new monetary framework. However, it will disappoint those hoping for quick answers about the precise structure of financial regulation in the future.
The paper, still to be seen by the Bank governor, will indicate that bigger and more systemically important banks will have to hold higher capital and liquidity buffers, and will unveil a new resolution regime for dealing with the insolvency of big banks.
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