The FPC, alongside the Prudential Regulation Committee (PRC), contributes to the design and calibration of the Bank’s stress testing framework. Stress tests allow the FPC and the PRC to assess banks’ resilience and make sure they have enough capital to withstand shocks, and to support the economy if a stress does materialise.
Financial Policy Committee powers
The FPC has two sets of powers – powers of direction and power of recommendation. The FPC has the power to direct regulators to take action on a number of specific policy tools. In addition, the FPC can make recommendations to anyone to reduce risks to financial stability.
FPC powers of direction:
- set the countercyclical capital buffer (CCyB) rate for the UK.
- set sectoral capital requirements for UK firms
- set a leverage ratio requirement for UK firms
- set loan-to-value and debt-to-income limits for UK mortgages on owner-occupied properties
- set loan-to-value and interest cover ratio limits for UK mortgages on buy-to-let properties.
The FPC publishes policy statements for each of its powers of direction to explain how it plans to use them and why.
The FPC's approach to setting the countercyclical capital buffer
Countercyclical capital buffer core indicators
The FPC's powers to supplement capital requirements
Sectoral capital requirements core indicators
The FPC's powers over leverage ratio tools
The FPC's powers over housing policy instruments
Housing tools core indicators
Countercyclical capital buffer rates
The countercyclical capital buffer (CCyB) is a tool that enables the FPC to adjust the resilience of the banking system. The FPC increases the CCyB when it judges that risks are building up. This means that banks are required to have an additional cushion of capital with which to absorb potential losses, enhancing their resilience and contributing to a stable financial system.