Bloomberg News

BOE Shunning Mortgage Controls ‘Discomforting,’ BSA’s Coles Says

October 16, 2012

The Bank of England’s decision not to seek control over loan-to-value and loan-to-income ratios on mortgages is “discomforting,” Building Societies Association Director General Adrian Coles said.

Speaking in London today to lawmakers examining proposals to give the central bank unprecedented financial regulatory powers, Coles also said “proper transparency” is needed as the move will make the institution one of the most “powerful unelected entities in the democratic world.”

The Bank of England’s Financial Policy Committee asked the government in March for controls over certain capital and leverage requirements and rejected seeking powers on mortgage LTV and LTI ratios, saying these would need a “high level of public acceptability.” Policy makers said other tools such as the ability to vary sectoral capital requirements may be able to achieve some of the same stability benefits.

“There is a concern about the extent to which they’re saying ‘We don’t want LTV and LTI explicit controls, but we are in favor of having the power to raise sectoral capital requirements on particular LTI and LTV ratios,’” Coles told the Treasury Committee today. “I’m a little discomforted by that because that may serve to confuse the debate somewhat.”

When asked if he thought the FPC wanted the power to influence LTV and LTI ratios without the accountability, Coles said “I wouldn’t like to accuse of them thinking that way directly, but it’s crossed my mind.”

The BSA director general also said it would be sensible for the central bank to consider having a housing-market gauge as part of the financial-stability indicators used to calibrate its new tools.

Speaking alongside Coles, British Bankers’ Association Chief Executive Officer Anthony Browne said he welcomed recent announcements by policy makers that they are aware there is a trade-off between increasing the resilience of the financial system and growth.

“There has been more recognition now,” Browne said. “We certainly welcome having more flexibility there.”

The FPC, led by Bank of England Governor Mervyn King, is currently meeting on an interim basis while the Banking Bill is considered in Parliament.

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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