Financial Regulation: a preliminary consideration of the Government's proposals - Treasury Contents

Written evidence submitted by Peter Bonisch, Managing Director, Paradigm Risk, and PJ Di Giammarino, CEO, JWG


  1.  We have recently completed a major, independent review of systemic risk. Our comments are informed by that review activity.

  2.  Although not addressed by our recent review, we believe Treasury Committee can and should play a vital role by ensuring the relevant agencies, principally HM Treasury, the Bank of England and the Financial Services Authority, identify appropriately their respective functions and objectives for supervisory control of systemic risk and that any preconceptions are identified and, if necessary, challenged.

  3.  The focus of the Treasury Committee on this area in the domestic policy agenda is also critical to ensure it receives, at official level, the attention it needs and deserves. While European oversight of systemic risk is under development, each European Member State must translate European law and Level 2 guidance to domestic law. Also, as Europe's largest financial centre, London's contribution, officially and from its financial firms, will be vital to ensuring Europe adopts a robust, effective and internationally compatible framework for systemic risk supervision.

  4. In its consultation paper, HM Treasury does not distinguish systemic risk from other macroprudential issues. However, we believe there are substantial issues that pertain uniquely to systemic risk (as opposed to macroprudential issues more broadly) that makes its separate and active consideration vital for effective policy formulation.

  5. Whilst we have not had the opportunity to discuss these matters with HM Treasury (despite repeated attempts to do so), we are confident that the issues we raise in this submission—and the distinction between systemic risk and other macroprudential issues—are understood in some functions at the Bank of England and Financial Services Authority.

  6. Without active and separate attention to systemic risk issues by Parliament (through the Treasury Select Committee) and HM Treasury, it is possible that the Bank of England will not be afforded the latitude, priority or resources to put in place the range of activities, modelling approaches and other solutions it will require to supervise and attempt to control systemic risk.

  7. A roadmap for development of a global or globally compatible approach to systemic risk supervision is urgently required at international, regional and national level. In the UK, the regulator should, after consultation and collaboration with financial firms, develop and promulgate a regulatory data architecture to improve firms' regulatory data management and its own use of supervisory data. This should include mandating the development of a standard regulatory data taxonomy for the UK; we also advocate this for other jurisdictions.

  8. Considerable and potentially divergent research is required on the problems of systemic risk. This will need to be inter-disciplinary and involve an unprecedented level of cooperation and collaboration between financial firms, regulators, supervisors and academics of different `stripes'.

  9. At present, firms and representative trade bodies have not been engaged in the debate on systemic risk issues. Their understanding and engagement will be essential. Unlike monetary policy interventions, systemic risk interventions will not treat all firms equally and evidential standards for intervention will be considerably greater. If the regulatory logic on systemic risk is not sound and communicated effectively, firms are likely actively to challenge supervisory action.

  10. Structural solutions, which are at the heart of the HM Treasury's consultation paper, are less important than conceiving and describing realistically the challenges of systemic risk supervision and developing suitable information sources to inform supervisory decision-making (whoever undertakes the role). It is more important that this be done well than quickly.


  11.  In May 2010, Paradigm Risk and JWG began a project to research the practical issues of systemic risk. The research, part-funded by an award from the Technology Strategy Board, was undertaken in collaboration with the Financial Services Knowledge Transfer Network who commissioned the project at our suggestion.

  12.  In this submission, we are representing only the views of the authors of the report: Peter Bonisch of Paradigm Risk and PJ Di Giammarino of JWG only. We do not represent, nor do we wish to appear to represent, the views of any other party.

  13.  Our research, which will be published this week, has involved dozens of interviews with officials from the UK, Europe, the US and some other jurisdictions, international regulators, academics, trade bodies and financial sector firms. We have reviewed hundreds of official and academic papers and validated our findings with officials and firms.

  14.  The focus of our work was initially purely practical: what "pipes and plumbing" would be required to develop and implement a robust and effective platform (ie system, infrastructure and capabilities) for supervisory control of systemic risk. However, as we have gone through the exercise of our review, we have found that there are more fundamental issues that are yet to be resolved, or in some cases even to be properly identified and addressed, before an effective supervisory solution can be described.

  15.  Our work has borne extensively on the issues discussed by the July 2010 Consultation Paper by HM Treasury titled A New Approach to Financial Regulation: judgement, focus and stability. Accordingly, and in the interests of promoting effective public discourse on these vital issues, we have sought to present our ideas to your Committee.

  16.  Our views are not without contention or controversy. Many of the issues we raise are well accepted by academics and officials alike. However, by no means all of our views have been accepted universally. One of the more noteworthy aspects of our review has been that, in the interviews and extensive review we have conducted, we have found very little alignment of views on any of the key issues of systemic risk other than the necessity of addressing it.

  17.  A significant part of our representation to your Committee is that, in the field of systemic risk, the notion of a single, accepted solution is both illusory and dangerous; we will be better off allowing and accepting both disagreement and debate about systemic risk and creating supervisory structures which allow and encourage such debate to be open, transparent and participatory. We are not convinced that the proposals of HM Treasury achieve these objectives. But nor do they preclude achieving them.

  18.  While we have views on the aspects on the HM Treasury's consultation outside financial stability, it is on those that our recent, extensive research has been undertaken. In our submission, we will limit ourselves to comments on that area (largely in chapter 2 of the HM Treasury Consultation Paper).


  19.  We have structured this submission as a series of questions to assist the Committee to understand the challenges we are raising.

What is systemic risk and why is its definition important?

  20.  It is clear that the focus of government agencies prior to the financial crisis was in the wrong place. The consultation paper by HM Treasury (hereafter HMT) concedes that:

    "...  one important lesson from the financial crisis has been that insufficient attention was paid to the systemic or aggregate risks that built up in the financial sector. Regulation was excessively focused on individual institutions, and recent experience has exposed the limits of this approach—because of the intricate linkages within the financial sector, even institutions that seemed to be in good health came close to collapse." (HMT, para 2.5)

  21.  This draws a clear distinction between supervising financial sector firms and supervising the financial system. The problem created by financial institutions, and the logic of intensive and invasive regulation of the financial sector (ignoring consumer protection), is the externality caused by the potential contagion effect of the failure of a highly levered financial firm. The focus on reducing the probability of individual firms' failure was misplaced, as the only valid concern to regulators (other than consumer protection) was the broader impact of the failure on the financial system. It is apparent that the regulator and supervisor—the Financial Services Authority (FSA)—substantially lost sight of this key objective.

  22.  There is an extensive definition of systemic risk in our report, and we will not cover it in detail here. However, in considered systemic risk, we consider it essential to differentiate the following:

    — Microprudential focus;

    — Macroprudential focus;

    — Systemic focus relating to the financial network and interconnectedness of financial firms; and

    — Resolution focus (at firm level).

  We reproduce the distinction in an Attachment to this submission, for your reference.

  23.  The key insight is the distinction between macroprudential focus, which includes counter-cyclical capital buffers, lending limits, collateral requirements and other tools indicated by HMT in Box 2.C, and systemic focus which considers the interconnectedness of the financial network and behaviours of firms in that network. Importantly, firms' behaviours may give rise to properties which emerge unpredictably from their interaction and create supervisory challenges entirely separate from those which may be considered macroprudential issues (using our narrower definition thereof).

What has HM Treasury proposed?

  24.  The HMT proposal advocates a Financial Policy Committee (FPC) as a committee of the Court of Directors of the Bank of England, with representation from the CEO of the Prudential Regulatory Agency (PRA) and HM Treasury. The FPC will four have external representatives.

  25.  The HMT proposal assigns the following objective to the Financial Policy Committee:

    — to protect financial stability by:

    — improving the resilience of the financial system by identifying and addressing aggregate risks and vulnerabilities across the system; and

    — enhancing macroeconomic stability by addressing imbalances through the financial system, eg by damping the credit cycle (HMT para 2.24).

  26.  The HMT paper advocates a range of policy tools that are macroprudential in focus (relating to the latter objective). However, the HMT paper is silent on interconnectedness and does not discuss systemic or network characteristics of financial firms. This is a surprising and unhelpful omission.

  27.  The key difficulty with the omission is that much of the uncertainty in the official and academic communities over the future direction of financial system regulation relates to interconnectedness rather than macroprudential elements. By failing to address interconnectedness, the HMT paper:

    — fails to address a critical area of the debate on financial sector regulation;

    — represents the state of that debate as far more settled than, in reality, it is or should be; and

    — fails to address, and thus to prioritise, the essential building blocks of any viable solution to the supervisory control of systemic risk as distinct from other macroprudential challenges.

  28.  There remain significant areas of uncertainty at all levels of the debate over systemic risk—at official, academic and regional and international regulatory levels. Key to these are:

    — the appropriate approach to understanding the risks posed by the interconnectedness of financial institutions and their behaviour—the methodological question;

    — how the various international supervisors can or will collaborate—the governance question; and

    — how to create an environment in which information required to be consolidated analytically can be brought together comparably—the data standards question.

  29.  None of these issues is addressed, or even raised, by the HMT paper, except to refer to the need for international collaboration at para 1.12. All (and many more) must be resolved before a satisfactory supervisory solution to the systemic risk problem will be possible.

How do the HM Treasury proposals differ from what was there before? What has changed?

  30.  The proposed structure differs very little from its ineffective predecessor, the Tripartite Agreement. The same institutions will be represented, often by the same people. While there will be a lead responsibility assigned to the Bank of England, the machinery will be fed by the same information sources.

  31.  However, the more important message:

    the Government believes a regulatory structure is needed in which both aspects of regulation—monitoring firms on a collective and an individual basis—are brought together (HMT para 2.16)... undeniably true. Also, the salience of the issue of system failure suggests that the individuals and institutions that were not properly attentive to the issue previously (by their own admission) are unlikely to make the same mistake again, at least for some years. However, the approach applied must be robust and also adapt over time to changing conditions and knowledge.

Will the HM Treasury proposals be effective? If not, why not?

  32.  In its paper, HM Treasury states:

    The Government believes that abolishing the tripartite system, and placing a single authority, the Bank, at the centre of the framework for preserving financial stability is the single most important reform needed to the UK financial regulatory system. (HMT para 2.25)

  If that is the case, "the Government" is emphasising organisational arrangements ahead of the substantive conceptual and analytical challenges of financial stability and systemic risk; our emphasis would differ. For the reasons suggested, this organisational reform, while valuable, is far from being the most important that can, or should, be made. Far more important substantive reforms are needed, as noted above, around methodology, international governance and data standards. The substantial commitment in the US Dodd-Frank Act of the funding and development of an Office of Financial Research to address systemic risk indicates that international approaches are already diverging. Once established, divergent supervisory data structures and data compiled with different underlying standards will be difficult to reconcile.

  33.  In terms of what the FPC can and will do, the HMT paper acknowledges:

    These macroprudential tools will be relatively untested, and there will inevitably need to be an initial learning process to adapt and fine-tune them.

  It then continues:

    Setting out the tools in secondary legislation will allow the Treasury, in consultation with the FPC, to easily adapt the tools to any lessons learnt in this initial period, as well as periodically assess the suitability of the macroprudential toolkit, and to incorporate any international developments in macroprudential regulation. (HMT para 2.36)

  34.  The lack of concession of the uncertainty of efficacy of systemic risk supervision specifically and macroprudential supervision more generally is unsurprising but disquieting. The reality is that, especially in the area of systemic risk supervision and control, there is no certainty that a solution can or will be found that will be operable. Certainly, without considerable, focused and explicit attention to the issues, limited progress is likely. The HMT paper does not offer such attention nor does it explain how it will arise. While officials of HM Treasury may have determined a suitable course of action, that is not evident from their consultation paper.

  35.  The HMT paper states:

    The majority of the macroprudential tools that are being considered involve the use of classic microprudential levers (such as capital requirements and leverage limits) for a macroprudential purpose. Therefore the legislation will stipulate that the PRA will be required to implement the FPC's decisions on the use of its macroprudential tools by applying them across all relevant firms. (HMT para 2.37)

  36.  While this may be true of macroprudential tools (as we have narrowly defined them), the HMT paper is silent on systemic risk tools. As yet, it is far from clear that precluding supervisory direction at individual firm level to reduce systemic interconnectedness is wise.

  37.  The HMT paper states:

    The transparency and accountability mechanisms for the MPC are considered a critical part of its success and credibility. The Government intends to recreate, as far as possible, these mechanisms for the FPC. (HMT para 2.52)

  There is a clear need for the FPC to deliberate behind closed doors. However, by publishing the Financial Stability Review (as it has, under one title or another, for more than a decade), the Bank of England already acknowledges the need to discuss openly and frankly issues of financial stability and systemic risk openly and frankly. In terms of methodology, there is a need for considerably greater transparency than is afforded under the current MPC arrangements. Indeed, there is unlikely to be one model or a single set of inter-operable models that will afford the official deliberative and decision body (we continue to refer to it as the "FPC" for convenience) sufficient insight—there will be no one "right answer" or, as we refer to it, no single-point solution.

  38.  We believe there is a need to design model plurality into the systemic risk supervisory framework through the FPC—recognition that multiple, contending models will be required and that there will need to be a basis for selecting potential models (or modelling exercises driven by empirical data), sourcing and accessing relevant data, validating results, assessing their utility, and comparing their results. The HMT paper is silent on all these issues, which our research suggests are essential for an effective systemic risk supervisory solution.

  39.  By itself that is not a concern. The Bank of England officials to whom these tasks will be assigned are all, as far as we have been able to ascertain, capable and diligent and would probably approach the task in the way we advocate. However, unless these considerations are "baked in" to their mandate, they may not be given the latitude, priority or resources to pursue them.

  40.  More concerningly, unless Parliament, through your Committee, understands these challenges, the Bank of England officials will not have the resources or encouragement to pursue actively, with financial sector firms and relevant academics, potentially divergent solutions to the challenge of systemic risk. Without an appreciation by your Committee and HM Treasury of the methodological difficulties involved, they will not enjoy the patience of your Committee and HM Treasury to debate these complexities openly with policy makers, academics and sector firms.

What would we propose that differs from HM Treasury's proposal?

  41.  In our report, we propose actions for all parts of the puzzle:

    — for politicians, regulators and supervisors, which are shown below;

    — for investment firms, their suppliers, trade bodies and technical associations; and

    — for the research community, academics and funding agencies.

  We attach the summary of the report from our recent review for your reference.

  42.  However, there are five themes we would like to bring out that deserve the attention of the Committee:

    — Multi-disciplinary solutions are needed.

    — Supervisory collaboration with firms is essential.

    — Focus of funding of research must reflect the need for sector engagement and multi-disciplinary research efforts.

    — Attention to international standards for reference data is an essential building-block of effective systemic risk control.

    — Resources need urgently to be applied to development of a regulatory data architecture and a blueprint for systemic risk control.

  We address each of these briefly.

Multi-disciplinary solutions

  43.  At present, many economic commentators, including leading members of the international academic economics "orthodoxy", contend or acknowledge that orthodox economics has not provided a satisfactory path for policy-making or supervision in systemic risk. Her Majesty, The Queen, received partial acknowledgement of this in response to a visit to one of the UK homes of economic orthodoxy, the London School of Economics. There is a need for extension of economic models and disciplines to acknowledge variously complexity, model agent behaviour and feedback systems in financial markets—the model pluralism we advocate, and to place data (observed reality) before models (which greatly simplify that reality). As a UK statistician, George Box, once observed: "all models are wrong but some are useful". Far greater emphasis, from a range of disciplines, needs to be paid to conditions of model utility and to the data which is needed to define and test those models.

Sector engagement

  44.  To date, financial sector firms have been left out of the debate on systemic risk. While there is no usual organisational home for systemic risk (ie no clear function responsible for it—it is the result of an externality), engagement of firms is not a luxury but a necessity. First, any additional data will be required to be sourced from either from sector firms, data aggregators or market operators. Secondly, an entirely conceivable approach to systemic risk—one under active consideration by international regulators—is the application of an additional capital charge or "add-on" relating to a firm's contribution to systemic risk. The standards of evidence for this will be—or should be, anyway—far higher than for economy-wide measures (this same evidential point holds true for macroprudential intervention also). Firms will be impacted differentially by such measures and their collaboration and co-operation will be essential to avoid dissent, conflict and the possibility of litigation.

The focus of funding

  45.  Much funding for academic research focuses on ranking of research based on venue of publication. We have heard considerable criticism of this approach both from with the academic economics and from the financial services sector. Although we have not reviewed funding formulae, we believe that there is insufficient engagement between firms and academics, academic and regulators, and regulators and firms. Also, where such engagement occurs, multi-disciplinary or inter-disciplinary research is rare. All sector participants have impressed upon us the need for incentives for research and for participation in research initiatives to be refocused towards greater interaction between sectors and disciplines.

International data standards

  46.  At present, there are no uniform international standards for reference data. As a result, a counterparty (say, Vodafone plc, just as an example) may mean different things to Barclays Bank (Sao Paolo) Limited and Mitsubishi UFJ Financial Group's Singapore subsidiary. Furthermore, even within financial groups, one of our firms, JWG, has found in a recent survey of data standards that there are considerable discrepancies in reference data standards among major financial sector firms. For data to be comparable between regulated entities and internationally—an essential component of any internationally integrated systemic risk supervisory regime—these data standards must be aligned.

Regulatory data architecture and systemic risk blueprint

  47.  Despite the enormous information and reporting loads placed on UK firms (and firms in all comparable jurisdictions), the regulator and supervisors have developed no coherent model of its data requirements or its data uses. This results in fragmented and often repetitious data requirements from firms and increases the cost of data provision to the sector. It also reduces the analytical efficiency of supervisors. While this lack of data coherence has persisted and been tolerated to date by politicians, policy-makers, regulators, central bankers, supervisors and sector firms, it adds costs and impedes (and may inhibit) the development of a robust international financial supervisory capability for systemic risk. Technologies (such as XBRL—a data tagging taxonomy or framework) that are in development elsewhere have been overlooked in the UK.

  48.  The UK supervisor should, we believe, as a matter of priority, define a robust and comprehensive data architecture that it can communicate to and validate with the financial services sector. It must be adaptable, extensible and support unified data standards. Once this has been achieved, it will be practicable to develop a blueprint for data to support more meaningful analysis of interconnectedness, feedback systems in financial markets and systemic risk. Without such a blueprint, these ambitions appear unachievable.


  49.  In our report, we recommend a series of actions for all relevant participants in the sector. Those findings relating to politicians, regulators and supervisors are shown here:

  Key problems:

    — understanding systemic risk is a complex, multi-faceted problem. There are no single-point solutions;

    — there is presently considerable political will to address the problem, but objectives of the national and supranational control organisations are not sufficiently aligned;

    — given the volume of market, technology and regulatory innovation, the requirements for a control infrastructure are getting more difficult quickly and will continue to change;

    — the practical implications of the quantum of regulatory change is impossible for any one body to interpret for the whole industry;

    — SR control is not a problem solved by edict from the "centre". A collaborative approach inclusive of all facets of the industry is required;

    — there is a "guilty knowledge" dilemma that disincentivises supervisors from collecting data that they are not able to process and draw conclusions from;

    — an efficient systemic risk supervisory structure requires global supraordination but approaches have already begun fragmenting in 2010;

    — incentives for collaboration with the firms who have the expertise, and the resources to help, have not been established;

    — vendor profit incentives are leading to the generation of multiple fragmented "quick fixes" that will not address the holistic problem—which is yet to be understood;

    — costs can be in tens or hundreds of billions without certainty of benefit; and

    — milestones which are currently in the G20's action plan are unlikely to be met.

  What the problems mean to you:

    — the problem will continue to distract supervisors from attending to the risks they are meant to be controlling;

    — consequences of moving too slowly, or in the wrong direction, are high as an incorrect analytical approach may do more damage than good;

    — whatever solutions do get developed are likely to be costly, late and inefficient as mandates for decision-making are not clearly articulated;

    — more resources will be required at supranational, regional and member State levels;

    — a clear roadmap of "what good SR oversight looks like" as described in Chapter 6 is required now; and

    — if you want to return to "crisis as usual" stop reading now.

  Your action checklist:

    — articulate clear mandates at international, regional and national levels;

    — increase resourcing levels to do the job properly;

    — set a date by which a roadmap is required in order to catalyse new, ongoing requirements, design and standards discussions;

    — understand control requirements though practical, multidisciplinary and focused research;

    — make a realistic statement about the information capabilities that are truly required;

    — establish the incentives for the appropriate participation of the firms and their suppliers; and

    — mandate the development of standard regulatory data taxonomy in each jurisdiction now, or accept the risks, costs and consequences of building a regulatory tower of Babel.


  1.  Framework for the regulatory toolkit defining and differentiating systemic risk focus from macroprudential focus (see paras 12 and 13 of this submission).

  2.  Response to questions posed by the Treasury Committee.

  3.  Summary material from our research: Achieving Supervisory Control of Systemic Risk.


FocusTerminology Additional coverage requiredDevelopment state
Firm-level aspectsMicroprudential —  Adding to existing firm-level prudential and control rules

—  Enhancements to governance of risk—per Walker

—  Liquidity enhancement

—  Prudential capital requirements

Under development or implemented at local and BIS level
Micro and macroprudential —  Stress testing
—  Reverse stress testing

—  Firm and sector liquidity exercises

Under development or implemented at local and ECB level
Macroprudential—  Counter-cyclical buffers

—  Instrument or counterparty class risk weights for capital requirements

—  Collateral requirements

—  Prospective cyclical loss provisioning

—  Lending limits / credit controls

—  Reserve policy

Under development or development under consideration
Resolution measures —  Living wills and data requirements of the special resolution regime

—  Contingent capital measures

Under development
Network aspectsSystemic —  Interconnectedness

—  Capital adjustments for highly interconnected firms

—  Transmission mechanisms

—  Amplification mechanisms

—  Emergence mechanisms

Under discussion at academic level
Economy aspectsMacroeconomic —  Linkage of macroeconomic variables to financial system risk

    —  Fiscal policy

    —  Monetary policy settings
Extensive commentary emerging academically and at policy level



  50.  In this section, we answer briefly the questions posed by the Treasury Committee in its press release dated 28 July 2010 announcing the consultation on the HM Treasury Consultation Paper.


Will the Government's financial regulation proposals improve the framework for financial stability in the UK? Will they work in a crisis?

  All sophisticated analyses of the financial crisis, including many offered by the Bank of England, have emphasised financial system interconnectedness, "network effects" or "systemic risk" as a contributory factor. HM Treasury analysis is silent on this point; its policy prescription is similarly silent. Without a clearer picture of the proposed approaches to systemic risk, it is not possible to know whether the approach described in the HMT paper will be effective. There can be no certainty that any framework that allows leverage by financial firms and interconnectedness between them will avoid crises in future.

Do the Government's proposals get the balance right between tackling the problems of the last crisis and preparing the UK financial system for the next one?

  We do not believe so, for reasons we explain in the body of our submission.

How do the Government's proposals dovetail with initiatives currently being undertaken at European and the global level?

  In relation to systemic risk, they are largely compatible but offer no leadership. As the major financial centre in Europe, we believe this represents a lost opportunity to steer the debate on and suggest solutions for systemic risk. If the UK official sector does not improve its coherence and co-ordination on the topic of systemic risk and represent this effectively to ESRB / ECB and decision-makers at European Commission and EU Parliament level, any opportunity for such leadership or recovering such leadership may be squandered. We do not believe that is necessary or in the UK's interest.

What costs will the regulatory structure place on consumers?

  We have not reviewed this issue in relation to systemic risk.


Do the Government's proposals appropriately assign roles and responsibilities between the different regulatory institutions?

  We consider this issue less important than defining the appropriate requirements for systemic risk, which we have attempted to address in our report, a summary of which is attached. Without defining requirements or even objectives in relation to systemic risk, assignment of proposed roles and responsibilities appears premature.

Will there be unintended consequences of the Government's proposals for regulation on the prospects for non-bank financial institutions?

  Inevitably. We have not attempted a robust analysis of this issue, but have highlighted several such "unintended consequences" in our substantive submission.


    — Should the FPC have a statutory remit? If so, what should that remit be?

  We have not reviewed this issue robustly.

How should the success of the FPC, both in and out of crisis, be measured?

  It is not possible to measure the success of something the purpose of which is to avoid an event, except by experiencing the event and finding it a failure. This is a key epistemological dilemma of supervisory control of systemic risk. We discuss this issue further in our report at section 3.3.

    — Given the international regulatory framework, what macro-prudential tools should be granted to the FPC?

  We have not reviewed robustly the alternatives for macroprudential tools for the FPC. Our chief concern is that those indicated in the HMT paper do not cover detecting, measuring or responding to interconnectedness in financial markets.

Has enough been done to mitigate the risk of conflict between the FPC and the Monetary Policy Committee (MPC)? Is the FPC appropriately structured in terms of:

    the balance between internal and external members?

    the size of the Committee?

  Although we have not reviewed this matter closely, we have made some comments on it substantive submission (see paras 19 and 20, above)

What characteristics, experience and qualities should the Government look for when appointing external members of the FPC?

  We did not review the requirements or capabilities of members of the FPC as it is currently proposed. However, based on our review of the requirements for supervisory control of systemic risk, we believe:

    — First, they should be experienced bankers.

    — Secondly, they should be experienced policy makers.

    — Thirdly, they should have regulatory and/or supervisory experience.

    — Fourthly, they should have experience as economists, econometricians or social scientists.

    — Fifthly, they should have extensive experience at data mining, "statistical physics", complex systems analysis and/or agent-based modelling.

    — Finally, they should not want the job.

  That seems an unlikely combination of attributes.



  The summary information from our report Achieving Supervisory Control of Systemic Risk is attached separately.

  The full report is available at and

22 September 2010

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2011
Prepared 3 February 2011