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The Bank’s winding path

The Bank of England’s new financial policy committee needs to give out a clearer message

Ever thought the minutes of the Bank of England’s monetary policy committee can be tricky to decipher? Try today’s statement from the Bank’s new financial policy committee. It wasn’t merely nuanced; it was unclear.

On one hand, the committee recommended that banks should take “any opportunity” to strengthen their capital and liquidity levels. Fine, that’s straightforward: we want banks to be able to absorb shocks and still lend.

But in the next paragraph the FPC said “some actions” to raise capital and liquidity should be avoided because they could worsen “the feedback loop” between the financial sector and economy. In other words, sometimes it’s OK for banks to run down their capital and liquidity.

But when? When does “any opportunity” to strengthen capital cushions really mean an opportunity to be ignored? When does the need to maintain lending to the economy trump the desire to reinforce the buffers? That’s the fuzzy territory where the world seeks clarity from the FPC.

Behind the scenes, one suspects, the message to banks boils down to “cut bonuses and keep lending”. But today’s statement took a winding path around that point. Let’s hope matters improve when the FPC has been given the tools it wants to do its job. It should start by asking the Treasury for an experienced copywriter. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds