The UK financial system plays a critical role in the economic activity of households and businesses via its provision of services to them. These include financing of production and consumption, deposit and liquidity facilities and saving, investment, insurance and payment services. In turn, these services rely on a complex supply chain including technological, data, legal and other financial services.
Since the FPC’s inception, the nature of threats to the stability of the UK financial system has evolved, as have the analytical tools available to help tackle those threats. The FPC, and the analytical framework supporting its policymaking, has adapted accordingly, and is at the forefront of efforts to identify and tackle risks across the system as a whole.
After more than a decade of experience, it is timely to take stock of that analytical framework, and to ready it for the next decade. With this rationale in mind, this paper proposes some enhancements to that framework, which will inform Bank staff’s investment work over the next few years. The intention is that these proposals will also serve as a starting point for wider dialogue, forming the basis for further engagement and collaboration with researchers and practitioners outside the Bank.
The key enhancements proposed by this paper are summarised as follows. They are grouped according to three elements that are common to the analytical frameworks used by many financial policymakers. That is: i) policy objectives and instruments, ii) risk assessment and policy evaluation, and iii) data (and data analytics).