LONDON (MNI) – The Bank of England Financial Policy Committee will
take a forward-looking, preemptive approach to supervision of the
financial sector, BOE Executive Director Markets Andrew Haldane says
today.

Haldane says that the inauguration of the FPC will mark “a
root-and-branch change in our approach to supervision” and would also
be “tolerant of bank failure”.

“There will be a focus on the big risks – the Barings of
yesteryear, the RBS of yesterday. Supervision will be front-foot,
testing for stress before it strikes and visits to the zoo need to be
cancelled. It will be also tolerant of bank failure – Barings Mark 2
rather than Mark 1 – so that market discipline can work its magic”.

The FPC would “monitor the punchbowl before it is emptied and
before aspirin needs administering,” Haldane said.

The comments come as Parliament prepares to debate reforms to the
banking industry and the legislation that will launch the FPC with
its quiver of new macroprudential policy tools and new ‘twin peaks’
regime for financial regulation.

Haldane also laid stress the radical changes to the BOE’s provision
of liquidity to the banking sector in recent times, which he said had
been ‘underplayed’.

“The Bank’s (BOE) liquidity menu is now crystal clear, from which
banks can now themsleves choose”.

Haldane stressed that the present period posed a tricky balancing
act for the interim FPC and the BOE, as its struggled to strengthen the
resilience of the system while at the same time keeping credit flowing.

The FPC had been navigating a “particularly hazardous course” of
late, he said.

“The financial system and economy are suffering the hangover from
hell. The FPC’s task is to keep the system safe in the face of
heightened risks of a relapse, while at the same time keeping the banks’
credit arteries open to support the economy”.

The remarks follow a warning from BOE Deputy Governor Paul Tucker
Wednesday that remains a risk that the ‘worst’ may not yet be over.

“There is still a tangible probability, not a high probability but
a tangible probability, that the worst may still be ahead,” Tucker
told the British Bankers’ Annual Conference here.

Such comments from BOE officials suggest that they remain alert to
the continuing vulnerability of the banking sector in the face of the
threats from the euro zone and a slowing global economy.

–London Newsroom +44 20 7862 7492; email: dthomas@marketnews.com

[TOPICS: M$$BE$,MT$$$$]