LONDON, July 15 (Reuters) - 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 mortgage lending.
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.
“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 period.”
“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.”
“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.”
”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.”
“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.”
”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 committees.”
“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 slightly better.
“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.”
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.
Reporting by UK bureau