LONDON, July 15 Bank of England Governor Mark
Carney and three other policymakers appeared before British
lawmakers on Tuesday to discuss last month's half-yearly
Financial Stability Report, which recommended tighter curbs on
See below for highlights of the remarks from Carney, Deputy
Governor Andrew Bailey and the BoE Financial Policy Committee's
external members Don Kohn and Martin Taylor.
CARNEY ON HIGHER LEVERAGE RATIO
"The leverage ratio can have effects on, particularly, the
business models of building societies and investment banks.
Those effects are schematically detailed in the consultation
"We disagree with the characterisation of the leverage ratio
as a backstop. We don't view it as a backstop, we view it as an
integral part of capital framework."
KOHN ON CAPITAL CONCERNS
"I also think that I would be concerned if we, the FPC, saw
a reason to raise capital requirements in the system and the
leverage ratio didn't also rise."
TAYLOR ON THE TWO RATIOS
"I think we genuinely believe that the backstop, frontstop
vocabulary is unhelpful here and are trying to put forward a
proposal where the two ratios do that in a complementary manner.
"I don't think its quite right to say that the leverage
ratio pushes banks to hold riskier assets."
CARNEY ON LEVERAGE RATIOS
"My mind is not settled on that because there is a trade-off
between complexity and simplicity (for leverage ratio) but there
is a real economic issue at the heart of this so that's why
we're having a consultation."
CARNEY ON THE TWO COMMITTEES
"The mix of expertise that is needed for the FPC to function
effectively requires some specialist skills that may not be
fully applicable to the MPC. The second thing is there are
distinct remits here.
"It is absolutely essential that these committees work
together as much as possible ... We have been doing that. I
don't think ... it's necessary, or advisable to merge the two
CARNEY ON RATE RISES
"We don't know exactly when the rate cycle is going to
start. It will be driven by the data, we do expect markets to
react to that data.
"We were concerned that markets were not reacting to data, a
fairly long run of data, that was as good as expected, if not
"We had not pre-set path, the only guidance that the new MPC
is now giving is around the expected medium-term path of
interest rates, not the timing of the first rate rise."
CARNEY ON RATE EXPECTATIONS
Asked if he wanted to combat complacency about monetary
policy by saying rates could rise sooner than expected:
"In terms of the short term path of monetary policy, yes,
absolutely. It doesn't take a genius to figure out that relative
predictability of interest rates in a low interest rate
environment encourages risk taking, we fully understand that."
CARNEY ON TUESDAY'S CPI DATA
"I am aware of today's CPI number, but I would only draw
attention that in the May forecast, the MPC forecast, inflation
returns to target at the end of the forecast horizon, only gets
back to 2 percent three years out."
"Inflation expectations are extremely well anchored in the
United Kingdom. They have definitely improved over the past
CARNEY ON HOUSE PRICES
"(The housing market) is the biggest risk over the medium
term of the durability of the expansion. Issues associated with
housing. We are aware of the structural supply issues, there are
fundamental deep structural problems in the UK housing market
that have existed for some time."
TAYLOR ON HOUSE PRICES
"House prices have been rising on a long-term trend faster
than wages for a very long time now. It's not sustainable
indefinitely but it can go on for quite a long time."
KOHN ON THE HOUSING MARKET
"I do think there is an issue on the relentless upward
pressure on house prices but it is not one the Financial Policy
Committee can really address."
CARNEY ON ADDITIONAL MEASURES
"We're not currently contemplating any additional measures
(for the housing market)."
BAILEY ON HEDGING PRODUCTS
"(There is) a dreadful record of the British banks in
selling hedging products to customers. But there is an
underlying need amongst customers for hedging, it just needs to
be properly done.
"We will have to be very vigilant about (future sales of
hedging products by ring-fenced banks)."
CARNEY ON MISS-SELLING ISSUE
"If you buy insurance, which is effectively what you are
doing by hedging through an interest rate, and if you match the
maturity of the hedge, the maturity of the loan, then this is
not an issue.
"If you were speculating, by saying that I took out
insurance at a certain interest rate and I wanted to redo it,
then yes, there is always a break fee but the stance of monetary
policy is determined not by interest rate speculation but by
achieving the inflation target."
(Reporting by UK bureau)