The Institutional Structure of Macroprudential Policy in the UK (Studies in European Economic Law and Regulation, 26)

Macroprudential policy (MPP) has been one of the major initiatives in the post-2008 crisis restructuring of financial regulation. Under the macroprudential mandate, the regulator monitors and judiciously controls systemic risk in the financial system, in an attempt to minimise the probability and severity of a future financial crisis. The book reveals why MPP authorities are rightfully at the centre of a highly sensitive policy debate, as MPP necessitates the allocation of significant regulatory power to technocrats, while the highly technical nature of MPP makes policy evaluation challenging. Specific issues examined include: the importance of financial stability as a public policy goal; the political economy issues stemming from the delegation of MPP to an independent authority; and the definition of accountability in the context of MPP. Focusing on a case study on the Financial Policy Committee of the Bank of England, the macroprudential authority in the UK, the book develops the normative grounds to justify the need for accountability in the conduct of MPP, while also formulating the necessary institutional framework to ensure the accountability of MPP authorities. The Institutional Structure of Macroprudential Policy in the UK: Accountability Between Brexit and Economic Connection with the Internal Market Acknowledgements Contents Abbreviations Chapter 1: Introduction 1.1 Background of the Book 1.2 Research Inquiry 1.3 Book Outline 1.3.1 Chapter 2: Financial Crisis: The Impact on the UK Economy 1.3.2 Chapter 3: The Macroprudential Shift: A Policy Pillar in the Making 1.3.3 Chapter 4: The Political Economy of MPP: Delegation and Accountability 1.3.4 Chapter 5: FPC: The Institutional Framework 1.3.5 Chapter 6: Transparency Requirements of the FPC: The Accountability—Efficiency Trade-off 1.3.6 Chapter 7: The NEDs of the Court of the Bank of England: Non-executive Directors as Guardians of the Public Interest 1.3.7 Chapter 8: The Role of the Treasury Select Committee 1.3.8 Chapter 9: The Limits of Judicial Review 1.3.9 Chapter 10: International Bodies as an Extra-Legal Accountability Mechanism 1.3.10 Epilogue References Chapter 2: The Crisis Impact on the UK Economy 2.1 Introduction 2.2 The UK Financial Services Debate 2.3 Trajectory of the 2007–2009 Crisis 2.4 Assessing the Domestic Consequences of the Crisis References Chapter 3: The Macroprudential Shift: A Policy Pillar in the Making 3.1 Introduction 3.2 The Limitations of Microprudential Regulation 3.3 Towards an Operational Definition of MPP 3.3.1 Financial Stability 3.3.2 Systemic Risk 3.3.3 Macroprudential Policy 3.4 An Overview of Systemic Risk Metrics and MPP Tools 3.4.1 Systemic Risk Metrics 3.4.2 Overview of MPP Tools 3.5 The Major Analytical Challenges Ahead: Ten Years After the Crisis References Chapter 4: The Political Economy of MPP: Delegation and Accountability 4.1 Delegation of MPP as an ‘Ulysses Pact’ 4.1.1 Exploring the Technical Competences of Central Banks 4.1.2 Monetary Policy: A Prime Example of Time Inconsistent Policy 4.1.3 Time-Inconsistency in MPP as ‘Inaction Bias’ 4.1.4 The Interests of the Finance Industry 4.2 Public Interest vs. Regulatory Capture in MPP 4.2.1 Defining Public Interest in MPP 4.2.2 Regulatory Capture in MPP 4.3 An Accountability Framework for MPP Authorities 4.3.1 Theoretical Considerations 4.3.2 Accountability in Central Banking 4.3.3 Compounding Challenges Towards an Accountability Framework for MPP 4.3.4 A Complementary Reputational Approach to Institutional Accountability References Chapter 5: FPC: The Institutional Framework 5.1 Introduction 5.2 The Lack of Institutional Focus Over Financial Stability 5.3 The Financial Services Act 2012 5.3.1 PRA, FCA and Resolution Regime Reforms 5.3.2 The Institutional Framework of FPC 5.3.3 FPC: The First Ten Years, 2011–2020 5.4 FPC: With Great Power Comes Great Accountability References Chapter 6: Transparency Requirements of the FPC 6.1 The Shift From Secrecy to Openness in Central Banking 6.2 A Conceptual Framework on MPP Communications 6.2.1 Definitions of Central Bank Transparency 6.2.2 The Central Role of FSRs 6.2.3 Challenges Towards Identifying the Optimal Degree of Transparency in MPP 6.3 An Overview of FPC Transparency Requirements 6.4 Conclusions: The Road Ahead in FPC Communications References Chapter 7: The NEDs as Guardians of Public Interest 7.1 Introduction 7.2 Independent Directors in Corporate Governance 7.2.1 The Accountability Function of Independent Directors 7.2.2 Insights from Central Bank Boards Internationally 7.3 The Court of the BoE as an Accountability Mechanism 7.3.1 The Development of the NEDs Framework Over Time 7.3.2 The Trifold Review Mechanism of the Court 7.4 Conclusions: The Lack of Contrarian NEDs References Chapter 8: The Role of the Treasury Select Committee 8.1 Introduction 8.2 The Treasury Select Committee Within the House of Commons 8.2.1 The Function of Select Committees 8.2.2 Scrutiny Record of the TSC 8.2.3 Conceptualising the Role of the TSC in Promoting FPC Accountability 8.3 Complementing the TSC: A Sentinel for Financial Stability References Chapter 9: The Limits of Judicial Review as an Accountability Mechanism 9.1 Introduction 9.2 The Potential for Judicial Review of the FPC 9.2.1 The Deferential Doctrine of the UK Courts 9.2.2 Considerations on Judicial Review of the FPC 9.3 Conclusions: The Reaffirmation of a Deferential Approach in MPP References Chapter 10: International Bodies as Extra-Legal Accountability Mechanisms 10.1 Introduction 10.2 The ‘Tragedy of the Commons’ in MPP 10.3 The Soft-Law Nature of IFR 10.3.1 Theoretical Considerations 10.3.2 The Financial Stability Board: Structure and Mandate 10.3.3 The Peer Review Mechanism of the FSB 10.3.4 The ESRB Recommendations Framework: 2011–2020 10.4 Limitations of International Institutions as Complementary Accountability Mechanisms References Chapter 11: Epilogue References Table of Cases Table of Legislation UK Statutes UK Statutory Instruments European Union Legislation