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2023 | Book

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The Institutional Structure of Macroprudential Policy in the UK

Author: Kosmas Kaprinis

Publisher: Springer International Publishing

Book Series : Studies in European Economic Law and Regulation

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

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.

Table of Contents

Frontmatter
Chapter 1. Introduction
Abstract
The present study draws attention to a significant issue that has been largely overlooked in academic and policy debates, the question of accountability of macroprudential authorities. It seeks to determine the appropriate design of legal safeguards through which accountability of macroprudential authorities in the UK can be ensured. The analysis is a comprehensive examination of the accountability mechanisms for MPP, concentrating on the case study of the FPC.
Kosmas Kaprinis
Chapter 2. The Crisis Impact on the UK Economy
Abstract
The chapter analyses the significance of the finance industry in the UK in relation to economic growth, public finances and employment, and presents the trajectory of the financial crisis of 2007–2009 in the UK. It illustrates the deep impact of the crisis on the UK economy which led to a wider restructuring of financial regulation, with macroprudential policy as one of the major post-crisis initiatives.
Kosmas Kaprinis
Chapter 3. The Macroprudential Shift: A Policy Pillar in the Making
Abstract
The chapter examines the paradigm shift on prudential regulation that followed the 2007–2009 crisis. It outlines the origins of, and current thinking, as regards the concepts of systemic risk and financial stability and MPP. It further provides a review of indicators and a taxonomy of potential MPP tools. It suggests that despite progress, empirical research has not yielded definitive guidance for new regulation, complicating significantly the accountability framework of the MPP authorities.
Kosmas Kaprinis
Chapter 4. The Political Economy of MPP: Delegation and Accountability
Abstract
The chapter discusses the rationale for delegation of MPP to an independent authority with reference to the time-inconsistency literature. It analyses the issue of capture of central bankers in relation to MPP, focusing on the potential of intellectual capture. It further elaborates on the accountability of central banks and discusses the additional challenges towards an accountability framework for MPP. It is reiterated that the delegation of MPP to independent central bankers, along with the policy choice of a guided discretion framework, poses several challenges for the design of accountability mechanisms. It is further argued that the accountability regime of MPP should consider the potential of reputational accountability for central bankers.
Kosmas Kaprinis
Chapter 5. FPC: The Institutional Framework
Abstract
The chapter provides a review of institutional changes in the UK’s financial regulation, introduced by the Financial Markets Act 2012. It examines the FPC’s mandate, statutory objectives, tools assigned, membership and governance, as well as the coordination with other authorities. It further identifies the major accountability issues that are associated with the particular institutional structure: the overlap of responsibilities with the PRA, MPC and the Treasury; the role of Governor as head of multiple committees within the Bank; the Committee membership and voting structure.
Kosmas Kaprinis
Chapter 6. Transparency Requirements of the FPC
Abstract
The chapter analyses the role of transparency as a mechanism of accountability of the FPC. It provides a theoretical framework on central bank transparency and discusses the major challenges associated with MPP communication. It further describes the application of transparency requirements to the FPC. The chapter argues in favour of additional communication channels towards the general public.
Kosmas Kaprinis
Chapter 7. The NEDs as Guardians of Public Interest
Abstract
The chapter examines the efficacy of the Non-Executive Directors (NEDs) of the Court of the BoE in monitoring the FPC. It describes the role of oversight boards in corporate boards, with additional insights from international best practices in central banking. It particularly analyses the conditions under which non-executive board members contribute to effective scrutiny. It further covers the debates over the institutional arrangements of the Court of the BoE. It is argued that, while the BoE has adopted constructive corporate governance practices, its NEDs lack the practical ability to provide meaningful accountability.
Kosmas Kaprinis
Chapter 8. The Role of the Treasury Select Committee
Abstract
The chapter examines the potential of the Treasury Select Committee (TSC) to monitor the activities of the FPC. It begins with a review of the broader issue of parliamentary accountability in the UK and the role of Select Committees. It highlights the competency of the TSC in yielding accountability through its inquiry reports and pre-appointment hearings. It further analyses its operational limitations and introduces proposals that would enhance the authority of the TSC. It finally discusses potential contributions of civil society towards ameliorating the aforementioned deficiencies.
Kosmas Kaprinis
Chapter 9. The Limits of Judicial Review as an Accountability Mechanism
Abstract
The chapter addresses the suitability of judicial review as an accountability mechanism for the FPC. It considers the scope of the courts’ power to engage in judicial review of administrative actions and documents the deferential approach of English courts. It subsequently highlights the equivalent problems in the application of judicial review for the FPC: the lack of regulatory expertise of judges, the polycentric nature of MPP decisions and the risk of tactical litigation. The proposition advanced is that judicial review has minimal applicability for the FPC.
Kosmas Kaprinis
Chapter 10. International Bodies as Extra-Legal Accountability Mechanisms
Abstract
The chapter examines the practice of peer review in the context of international financial regulation as an extra-legal accountability mechanism. It evaluates the potential of the Financial Stability Board (FSB) to provide an international accountability framework for national macroprudential authorities. It also discusses the relationship between the FPC and the European Systemic Risk Board (ESRB) and analyses the extent to which the ESRB has acted as a soft law accountability mechanism for the UK. It is documented that, while the output of these bodies can mitigate the information asymmetry between the FPC and the domestic stakeholders, at the same it is subject to same form of intellectual capture as domestic regulators.
Kosmas Kaprinis
Chapter 11. Epilogue
The First Decade of the FPC
Abstract
The chapter summarises the policy recommendations on the accountability arrangements of the FPC covered in the five preceding chapters. While pointing out towards specific areas of improvement, the major conclusion is that the FPC is efficiently monitored through existing accountability arrangements. This set of tentative recommendations contribute to the study of central bank accountability, as well as inform policy practice on MPP domestically and internationally.
Kosmas Kaprinis
Backmatter
Metadata
Title
The Institutional Structure of Macroprudential Policy in the UK
Author
Kosmas Kaprinis
Copyright Year
2023
Electronic ISBN
978-3-031-33576-1
Print ISBN
978-3-031-33575-4
DOI
https://doi.org/10.1007/978-3-031-33576-1