So the FPC was there to scan for financial stability risks and take preventative action to contain them where necessary. And that is what we did. Take the housing and mortgage market, for example. Historically, the UK housing market has been characterised by periodic boom episodes, followed by busts with serious consequences for financial stability and economic growth. The period of low interest rates following the GFC threatened to create the conditions for another boom in house prices and debt. In response, the FPC introduced structural limits on borrowers’ loan-to-income ratios to prevent mortgage debt building up to unsustainable levels. This provided a guardrail to ensure that lending standards did not relax too far, and protected the economy from amplified swings in the housing market. The FPC has also made active use of the countercyclical capital buffer – a time-varying rainy day ‘shock absorber’ for banks. By building up capital when vulnerabilities were increasing and releasing it when needed to support lending and the economy, we were able to moderate some of the shocks hitting the financial system while monetary policy stayed where it needed to be for price stability. Importantly, the FPC supported the work of microprudential regulators (PRC in the UK and others overseas) to improve underlying standards after the GFC. And we stress tested major UK banks – including against scenarios where interest rates jumped up – to ensure they could withstand shocks.

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