Bank of England: tools to contain excessive risk in financial system have drawbacks

The Wall Street Journal reported on the Bank of England's Financial Policy Committees public consultation on the tools it should have to contain excessive risk from building up in the financial system.

The Financial Policy Committee itself thought that the tools had a number of drawbacks.  Drawbacks that reflect the fact that the Financial Policy Committee is operating in the dark with the equivalent of both hands tied behind its back.

Regular readers know that before the Financial Policy Committee tries to contain excessive risk in the financial system, it is necessary to implement the FDR Framework across the financial system.

Under the FDR Framework, regulators are responsible for ensuring that market participants have access to all the useful, relevant information in an appropriate, timely manner.  In short, every area of the financial system, like structured finance and banks, where there currently is opacity must be made transparent.

It is only when there is ultra transparency that market participants can actually see and assess the risks in the financial system.

Without ultra transparency, everyone is operating in the dark and operating in the dark is the number one drawback that the Financial Policy Committee faces in trying to contain excessive risk in the financial system.