Sir Mervyn King, the head of the Bank of England, said the central bank knows "absolutely nothing" about how the policy instruments its new watchdog has asked for to combat systemic financial risks will work in practice, and that it will need to win a battle of hearts and minds when it starts using them.
The bank's Financial Policy Committee (FPC), established last year to spot emerging bubbles in the financial system, last week agreed to ask parliament for a new set of policy tools that it hopes will help it prevent another financial crisis.
The FPC is seeking from parliament the power to ensure banks have countercyclical capital buffers, the ability to force banks to hold more capital against exposure to specific sectors judged risky and the power to set leverage ratios.
"One thing I want to stress is that this is an experiment. It really is an experiment," he said of the policy instruments at a conference in Washington on Saturday.
"We know absolutely nothing about how these instruments are going to work. It is very important that we play it safe and be cautious."
Like other central banks, the Bank of England is grappling with how to spot potentially systemic risks to the financial system and wider economy even as other indicators of health, such as inflation, are under control.
Source: Sir Mervyn King says new financial stability tools are 'an experiment' - Telegraph
Honest banker shocker - I am glad he keeps his mind open to conduct experiments anyway
The bank's Financial Policy Committee (FPC), established last year to spot emerging bubbles in the financial system, last week agreed to ask parliament for a new set of policy tools that it hopes will help it prevent another financial crisis.
The FPC is seeking from parliament the power to ensure banks have countercyclical capital buffers, the ability to force banks to hold more capital against exposure to specific sectors judged risky and the power to set leverage ratios.
"One thing I want to stress is that this is an experiment. It really is an experiment," he said of the policy instruments at a conference in Washington on Saturday.
"We know absolutely nothing about how these instruments are going to work. It is very important that we play it safe and be cautious."
Like other central banks, the Bank of England is grappling with how to spot potentially systemic risks to the financial system and wider economy even as other indicators of health, such as inflation, are under control.
Source: Sir Mervyn King says new financial stability tools are 'an experiment' - Telegraph
Honest banker shocker - I am glad he keeps his mind open to conduct experiments anyway
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