There was nothing contradictory in what I said, but I will clarify it. For the longer term, we absolutely agree that we need an internationally consistent standard that will work with a minimum leverage ratio. In the mean time, before we are able to employ that in a way that is consistent with how those rules work out, we have the powers individually to make sure that leverage ratios exist which protect the system. I do not think that there is anything contradictory about that. It simply shows that in the short term we have the capacity to protect the financial system, and that is exactly what the regulators have done. There is nothing contradictory in that at all. The regulators have the powers to do what they need to do and will continue to have those powers after international agreement has been reached, at which point we will integrate them through the power that we will give the FPC to set the varying leverage ratio through time.
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I will say, to give noble Lords the international context, that international agreement is on its way. It is in this context that the Government’s commitment to providing the FPC with this additional tool in its toolkit should be understood. Once the baseline minimum level has been set, the Government have made clear their intention to give the FPC an express power of direction to vary through time the baseline leverage requirement for deposit takers and investment firms, subject to it never being below the requirement, as you would expect, determined by Basel III. The precise design of the tool will therefore depend on the provisions of the relevant European legislation. This is a mechanical reserve to ensure that they fit together effectively. It would not make much sense to add this macroprudential tool to the toolkit until the baseline has been set. Indeed, as the FPC noted at its September meeting in response to a recommendation directed to it by the PCBS,
“a full assessment of the appropriate leverage ratio will depend on the definition of leverage agreed internationally”.
While work on the international standards is under development, in addition to the powers described the FPC will also have specific powers available to tackle systemic risk stemming from, for example, excessive leverage or any identified issues with risk weights on one or more classes of assets. In particular, the Government have already agreed that the FPC should be made responsible for policy decisions on the countercyclical capital buffer, which I think was a point raised strongly before. That will be in the hands of the FPC. It will also be given a power of direction over sectoral capital requirements. Those would be deployed if concerns of bubbles in certain asset classes took place—for example, in commercial property. The statutory Financial Policy Committee gained its powers over sectoral capital requirements on 1 April 2013, so that is already in place. For the reasons I have given, I call on my noble friend to withdraw this amendment.