Britain is to wind the clock back 30 years to an era of credit controls in an effort to stamp out speculative bubbles and protect consumers from crippling levels of debt under the most extensive overhaul of financial regulation in a generation.
Regulators will have the power to cap mortgages, limit credit to real estate investors, and force banks to restrict lending under powers that echo the 1980s – the last time credit could be switched on and off by a central watchdog
Outlining the plans, Financial Services Authority chairman Lord Turner of Ecchinswell called for a "mature public debate" on the issue, acknowledging that the measures, which "may include maximum loan-to-value ratios", would be "unpopular". Credit controls would mean some borrowers, who have had no trouble raising money in the past, would be turned down.
"Efficient and rational market" conventions of the past had failed, he said in his annual Mansion House speech, and "constraints on easy credit are sometimes in everybody's best interest.
"In many retail financial markets, the imbalances of knowledge and power between consumers and providers are so profound, and the potential for perverse incentives so great, that even highly competitive markets and extensive information disclosure are insufficient to protect consumer interests."
In an apparent criticism of the previous government, with which he was so close he earned the moniker "Red Adair", Lord Turner attacked "credit booms which, as long as they last, make governments popular and swell their tax revenues".
He welcomed the creation of the Financial Policy Committee, which will control the levers to "slow down excessive credit growth". Its "toolkit ... could mean restricting mortgage credit when individuals are buying houses in a rising market, and limiting credit to real estate investors who enjoy the rising prices which easy credit itself helps produce", he said.
"We need trusted authorities independent enough to make decisions on behalf of society – but also acceptance by society that there are difficult choices to be made."
He also conceded that, ideally, banks would be facing tougher capital requirements than the 7pc core ratio agreed by global regulators this month. "If we were philosopher kings designing a banking system anew, should we have set still higher capital ratios? Yes I believe we should," he said.
However, he warned investors that "the combined impact of all the changes is much greater than implied by the increase to 7pc".
He added that regulators, hooked on "the simplistic assumptions of the past" such as the belief that inflation targeting would "automatically deliver financial stability", were more to blame than bankers for the crisis.
"We need to move beyond the demonisation of overpaid traders and their unnecessary CDO squareds, to recognise that, in finance and economics, ill-designed policy is a more powerful force for harm than individual greed or error."
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FFS, there is just one sure way to stop flow of credit bubble - increase interest rates, keeping them at 0 with Vince Cable whining about banks not lending and then trying to pretend some central quango will somehow limit lending rates, ffs - all that stuff is what BoE should be working on, why are they silent, is it just monthly voting with predictable results all they are capable of?
Regulators will have the power to cap mortgages, limit credit to real estate investors, and force banks to restrict lending under powers that echo the 1980s – the last time credit could be switched on and off by a central watchdog
Outlining the plans, Financial Services Authority chairman Lord Turner of Ecchinswell called for a "mature public debate" on the issue, acknowledging that the measures, which "may include maximum loan-to-value ratios", would be "unpopular". Credit controls would mean some borrowers, who have had no trouble raising money in the past, would be turned down.
"Efficient and rational market" conventions of the past had failed, he said in his annual Mansion House speech, and "constraints on easy credit are sometimes in everybody's best interest.
"In many retail financial markets, the imbalances of knowledge and power between consumers and providers are so profound, and the potential for perverse incentives so great, that even highly competitive markets and extensive information disclosure are insufficient to protect consumer interests."
In an apparent criticism of the previous government, with which he was so close he earned the moniker "Red Adair", Lord Turner attacked "credit booms which, as long as they last, make governments popular and swell their tax revenues".
He welcomed the creation of the Financial Policy Committee, which will control the levers to "slow down excessive credit growth". Its "toolkit ... could mean restricting mortgage credit when individuals are buying houses in a rising market, and limiting credit to real estate investors who enjoy the rising prices which easy credit itself helps produce", he said.
"We need trusted authorities independent enough to make decisions on behalf of society – but also acceptance by society that there are difficult choices to be made."
He also conceded that, ideally, banks would be facing tougher capital requirements than the 7pc core ratio agreed by global regulators this month. "If we were philosopher kings designing a banking system anew, should we have set still higher capital ratios? Yes I believe we should," he said.
However, he warned investors that "the combined impact of all the changes is much greater than implied by the increase to 7pc".
He added that regulators, hooked on "the simplistic assumptions of the past" such as the belief that inflation targeting would "automatically deliver financial stability", were more to blame than bankers for the crisis.
"We need to move beyond the demonisation of overpaid traders and their unnecessary CDO squareds, to recognise that, in finance and economics, ill-designed policy is a more powerful force for harm than individual greed or error."
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FFS, there is just one sure way to stop flow of credit bubble - increase interest rates, keeping them at 0 with Vince Cable whining about banks not lending and then trying to pretend some central quango will somehow limit lending rates, ffs - all that stuff is what BoE should be working on, why are they silent, is it just monthly voting with predictable results all they are capable of?
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