David Prosser: Can the FPC calm your shattered nerves?

 

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The Independent Online

Outlook Andrew Haldane, the Bank of England's executive director for financial stability, is clearly a man with an immaculate sense of timing. When he published his latest paper, "Risk Off", yesterday morning, he cannot have known the markets were set to take another downwards lurch in exactly the sort of sudden sentiment shift he was anxious to discuss.

Mr Haldane's view is that while investors are right to worry about the balance sheets of governments, banks and even households, the prevailing pessimism may be overdone. That, he argues, is the result of "psychological scarring" – that the memories of the financial crisis of three years ago remain so fresh and painful that investors run for the hills at the first hint of trouble.

How, then, to address the fear factor? Well, one thought, says Mr Haldane, is that this is the duty of the new Financial Policy Committee, of which he is a member.

The FPC is a post-crisis creation, set up to hunt down and eliminate the sort of systemic problems regulators failed to spot last time around. The assumption has been that those problems would occur during periods of excess – credit bubbles being the obvious example – but Mr Haldane argues that this will not always be the case. The fear factor currently multiplying the volatility in the markets, for example, might be a systemic problem in its own right.

It's an interesting point. Potentially even more interesting is what the FPC might be able to do. We wait with interest.

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