The Financial Policy Committee proposes it should have ‘powers of direction’ over capital requirements and leverage ratios in specific financial services sectors.

The details were published in the FPC’s minutes of its last meeting held on 16 March.

The FPC is a committee set up within the Bank of England as part of the new tri-partite system of regulation which will come into power next year.

These tools could affect banks, building societies, investment firms, insurers and a variety of funds and investment vehicles.

The proposals would enable the FPC to target risks building up in specific areas and adapt the amount of capital needed against certain types of exposure.

It was noted certain sectors such as commercial property had been particularly over-exuberant in the run-up to the 2008 financial crisis.

However, the committee agreed it would have to be careful in identifying over-exuberant sectors meaning the FPC would need to significantly adjust capital requirements to curb lending to these sectors.

The committee said: “Some members noted that it may prove difficult for the FPC to identify over-exuberant lending to narrowly-defined categories of exposure at an early stage in the credit cycle. Over-exuberant sectors might also appear very profitable.”

Regarding leverage, it said it would set a ratio of total liabilities to capital and vary it over time.  This would constrain financial institutions’ ability to increase the overall size of their exposure relative to their capacity to absorb loss.

The committee said it was concerned about the consistency of banks’ internal risk assessments and that a ratio would be an effective way of counteracting these problems as it did not depend on the relative riskiness of assets.