Following new government initiatives and proposed legislation in the wake of the financial crisis, the Bank of England announced the setting up of an interim Financial Policy Committee (FPC) yesterday (17th February). The committee has been set up as part of the legislation to improve financial regulation and as part of the Bank's responsibility to maintain financial stability as well as its core remit to maintain price stability. A key part of this role is to reduce systemic risk, the risk to the financial system as a whole rather than to an individual financial institution, and strengthening the financial system as a whole against shocks.

The move to reducing the risk to the whole financial system is part of macro-prudential policy and the FPC will play a key role in this. In a news release the Bank said: "The interim FPC will undertake, as far as possible, the forthcoming statutory FPC’s macro-prudential role. An important initial task will be to undertake preparatory work and analysis into potential macro-prudential tools. The Government’s consultation document states that the interim FPC “...will play a key role in the development of the permanent body’s toolkit by sharing its analysis and advice on macro-prudential instruments with the Treasury, to help inform the Government’s proposals for the FPC’s final macro-prudential toolkit”."

There will be 11 people serving on the committee, 7 from the Bank of England and the Financial Services Authority and 4 external members along with two non-voting members, one a representative of the Treasury and the other the chief executive of the new Financial Conduct Authority. The FPC will meet at least four times a year and produce a twice-yearly Financial Stability Report. The committee will not only focus on macro-prudential policy but will also be involved with micro-prudential policy - the reform of regulation relating to individual firms.