The financial system FAQs

Answers to frequently asked questions on the financial system and financial stability

Keeping the financial system stable

  • The financial system provides a secure way to make and receive payments. It provides a safe place for everyone to keep their money. It enables people to lend or borrow money for a payment. And it matches investors and risk experts with those who need their expertise.
  • A stable financial system is one that can provide crucial services to households and businesses in good times and bad. Read more about financial stability.
  • We monitor risks to the UK’s financial system as a whole and take action to prevent any problems or reduce their impact. 

    Our Financial Policy Committee is responsible for overseeing this work. Twice a year, it publishes a report on any risks and explains what steps the Bank of England is taking. We call it our ‘Financial Stability Report’.

    We monitor banks and other financial firms 

    We make sure financial firms such as banks hold sufficient and have adequate controls in place to manage risks to their business. This is known as prudential regulation.

    We also watch over aspects of the way the firms run their business. We call this supervision. Our Prudential Regulation Authority does most of our prudential regulation and supervision. 

    We make sure the main ways you pay for things are reliable

    We provide the infrastructure for the main payment systems you use when you pay for things electronically with a card. We also run which people use to transfer large sums of money securely.

The Financial Policy Committee

  • The Financial Policy Committee leads our work on maintaining financial stability in the UK.

    The committee has 13 members. Some work for the Bank of England and others are business people or academics. 

    Having a mix of ‘internal’ and ‘external’ committee members means we have people with a wide range of skills and experience. That helps us give us a better understanding of the risks and to find effective solutions.

    Find out more about the FPC’s members.

  • The main role of the Financial Policy Committee (FPC) is to identify, monitor, and take action against risks that threaten the resilience of the UK financial system as a whole. 

    The FPC also supports the Government’s economic policy, including its objectives for economic growth and jobs.

  • The 2008 financial crisis showed how important financial stability is. Policymakers around the world recognised that focusing separately on price stability and on supervising individual firms was not enough. 

    In the UK, Parliament created the Financial Policy Committee (FPC) to fill that gap in April 2011.

    The committee looks out for risks and weaknesses across the financial system, such as unsustainable levels of leverage, debt or credit growth.

  • The Financial Policy Committee (FPC) usually meets four times a year. We publish these FPC meeting dates in advance.

    We publish a record of all the committee’s meetings.

    Twice a year, the FPC produces a ‘Financial Stability Report’ that highlights any risks to the UK’s financial system and recommends what action we should take.

    In March 2019, we replaced the FPC’s ‘statement’, with a ‘summary’ and we brought forward publication of the FPC record so it takes place at the same time as the Financial Stability Report.

  • The Financial Policy Committee (FPC) has powers of direction and powers of recommendation. 

    FPC directions are binding instructions given to the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA). The FPC can issue a direction to the PRA to make banks, building societies and large investment firms carry out certain actions.

    For banks, this includes powers to set capital requirements (to hold more money) and the level for countercyclical capital buffers (the amount of money held in reserve). Banks need enough capital, usually obtained from shareholders in return for a stake in the business, to provide a strong basis for their lending in case things go wrong. 

    The FPC can also make recommendations. It can make recommendations on a ‘comply or explain’ basis to the PRA and to the FCA. This means that if the regulators decide not to implement a comply-or-explain recommendation, they must explain publicly their reasons. The FPC can also make general recommendations to other bodies.

Didn’t find what you were looking for? Please help us improve by suggesting a new question.
This page was last updated 28 May 2020

Give your feedback

Was this page useful?
Yes
No
Add your details...