LIVERPOOL (MNI) – The following is a transcript of the answers
given by Bank of England Deputy Governor Paul Tucker in a Q and A at the
Association of Corporate Treasurers Annual Conference.
Questions are paraphrased.
Q: On the latest Treasury Select Committee report, which called on
the Bank of England to publish analysis on how quantitative easing has
impacted savers and said they should be compensated.
Tucker: “Well, I haven’t seen exactly what the Treasury Select
Committee said. So I hope you will forgive me for not going too far on
this.”
“It is certainly the case that all of us on the Monetary Policy
Committee, the nine of us, are immensely sympathetic to how savers have
been affected.”
“They didn’t cause this crisis and yet, as you say, the return on
their investments has in some respects been reduced by the actions we
have had to take.”
“But what I would say is this. That, had we not reduced interest
rates as far as we have, and had we not injected further money into the
economy by buying government bonds, which have bought down long term
yields, the recession would have been a lot deeper than we experienced.”
“I know it has been very hard for lots of people across the country
but it really would have been a lot deeper.”
“Back in 2009 people were seriously worrying about deflation and
about depression. And the reason I say that is that those are
circumstances in which the investments of savers are absolutely
destroyed.”
“Savers are effectively investors in the future prosperity of our
economy. The most important thing that the macro-economic authorities
can do for savers is to bring about recovery in the economy.”
“And that we will continue to do so long as it is consistent with
achieving our 2% inflation target.”
“Be we will, of course, look precisely at what the select committee
have had to say – they are the voice of parliament to which we are
accountable.”
Q: On the impact of QE, the potential benefits of extending it and
“whether the Bank would consider other alternatives”.
Tucker: “Well, I think the most important thing to say is that
whatever we do with our monetary instruments it depends upon what we
think is the medium term outlook for inflation.”
“The reason that we have stimulated the economy ultimately is that
had we not we would have been looking to a period where, far from
inflation being very high now, down the road it would have been
incredibly low and possibly negative.”
“Whether we do any more or not will depend upon the outlook for
inflation as we judge it. And, as I have made clear this morning, the
path back to our 2% target looks to be slightly higher than perhaps we
had thought even three months ago and that is something that I am sure
that we will weigh.”
“In terms of the range of instruments. We have thought, as a
committee, that QE works. We don’t think that this is some outlandish
instrument.”
“What is it that monetary policymakers can do ? We can either put a
price on our money. Well, that has reached near zero, or we can put more
of our money into the economy and that is what we have done.”
“And whatever techniques we employ, that is always at the root of
what we do. Our stock in trade is our money.”
Q: On the potential impact of the BOE’s Financial Policy Committee
asking banks to post more capital against some sectors, and which
sectors they had in mind.
Tucker: “OK. It would be, the picture would be, whatever sector was
experiencing an uncontrolled boom and where there was a prospect that
if, when the boom turned to bust, that that would completely undermine
the financial system.”
“So what we are trying to do here isn’t micro-manage the credit
system but we are trying to underpin the banking system and the rest of
the financial system.”
“And that, in principle, could be almost any sector if you look
back over 200 years of history. If you look back over a relatively short
period it has often been property, it has often been within the
financial system.”
“Why occasionally (we) focus on sectors, I don’t want to mislead
you, I mean the other tool we have asked for is to be able to increase
the aggregate amount of capital that banks have to hold against their
total liabilities, or their risk weighted assets.”
“But why have a sectoral tool as well ? Imagine that there is a
boom only in one sector – commercial property sectors, say, and that
this boom is big enough that if it turns to bust it really will hurt the
banking system.”
“And imagine that we increased the banks’ total capital
requirements rather than their sectoral capital requirements. Well, that
would leave the possibility that the banks continued lending into the
boom and cut back on lending to households or SMEs or other parts of the
domestic economy or the international economy that weren’t booming.”
“So just very occasionally where the problem, the threat to
stability, is localised, try and deal with it on a local level basis.”
Q: Wouldn’t it be better for the banks to manage their own
portfolios ?
Tucker: “Well, you’re right. Two thoughts. Do we want to write
rules for the game for finance where, within those rules of the game,
within that box, people running banks, people running investment banks,
make their own decisions ? Yes.”
“Can we completely rely on that all of the time ? Sadly, no. We
have 15 million people unemployed in the western world as a result of
this financial crisis. That is a hell of a lot.”
“So these are, you can think of them in some ways, as being reserve
powers to step in and adjust the rules of the game because conditions
have changed.”
–London newsroom 0044 20 7862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
