When it inherits the remit of City regulation from the Financial Services Authority in two years’ time, the BoE will be tasked with macroprudential oversight of the banking system. Deputy governor Charlie Bean said for the first time over the weekend this could include putting “direct constraints” on individuals’ access to credit at the top of the cycle to preserve the health of banks.
The BoE could cap mortgage loan-to-value ratios and demand deposits of up to 25 per cent, Bean said in a speech to American financiers. The limits would be designed to prevent a repeat of the credit crisis, which saw some borrowers granted as much as 125 per cent of their property’s value, leaving them stuck in negative equity when prices tanked.
Bean said: “There is the option of introducing direct constraints on the terms or availability of credit... The best approach seems likely to involve a portfolio of instruments.”
British Bankers’ Association chief executive Angela Knight welcomed Bean’s suggestions. “What needs to take place now is a proper discussion explaining why at certain times individuals will be restricted in how much they can borrow. The reason these things needs to be discussed is they impact society – rather than just banks – and society needs to understand.”