Carney ready to clamp down on housing bubble
TOUGHER lending criteria could be in place as soon as June if a housing bubble emerges, the Bank of England’s financial policy committee (FPC) said yesterday.
The panel, led by Mark Carney, does not believe a bubble is inflating, but wants to reassure markets it will nip any emerging risks in the bud.
From next month banks will have to assess home-buyers’ ability to afford loans more rigorously, looking at the possible interest rate rises over the next five years.
And if the FPC thinks the market is overheating dangerously, it will be able to make those tests tougher.
The FPC also fears a series of new fines could be big enough to present a risk to financial stability.
Allegations of wrongdoing in foreign exchange and commodities markets could lead to fines of hundreds of millions of pounds, plus legal costs.
Meanwhile the Bank of England is looking at changing the way the leverage ratio is used to stop banks over-extending themselves.
Currently banks have to build up a capital buffer to protect themselves against loan losses. This buffer is weighted based on the risk associated with the loans the bank has made.
But they also face a maximum leverage level, limiting the amount of loans they can make regardless of the relative risks of those loans.
The Bank is looking at weighting the leverage ratio by risks, and adjusting the ratio as the credit cycle progresses.
It comes after complaints from lenders like building societies that they have very safe books of high quality mortgages, but their lending is limited by a crude leverage ratio.