Bank To Get Powers To Cut Credit

[interestrateripoff]

http://news.bbc.co.uk/1/hi/business/8136788.stm

The Bank of England is to be given new powers to control the amount of money that banks and building societies lend, the BBC has learnt.

A new committee will take members from the Bank of England as well as the Financial Services Authority (FSA).

It will try to stifle lending booms, of the kind seen between 2005 and 2007, as well as stimulating lending during recessions such as the current one.

The plans are due to be published by the Treasury on Wednesday.

But the new committee will not be set up quickly because there are disagreements between the Treasury, Bank of England and FSA about what tools it should be given, according to the BBC's business editor, Robert Peston.

One possibility is that banks should have limits on the amount they are allowed to lend relative to the amount of capital they hold.

The committee would then be able to raise or lower those limits depending on the state of the economy.

Alternatively, the committee could be given powers to set limits on the amounts that banks are allowed to lend to housebuyers, relative to their income.

Another possibility is that the committee could be given powers to impose targeted taxes on loans that could be used to limit lending in a boom.

Our correspondent says the plan represents an important cultural and economic break from the policies and ideology of the past 20 years, during which there was a political consensus that there should be no attempt to ration lending and that a free market in loans was essential to British prosperity.

If there's a problem put a tax on it, it's the Labour way.

Why is it so hard for them just to have lending multiples? 3x salary end of story.

[Guest KingCharles1st]

T H I S H A S P O S S I B I L I T I E S

EDIT- ITS A PESTON "LEAK"

sigh...

I heard that tw at on R5 this morning- going on about the latest "investigative journalism crap that he thinks he is getting away with

Mouth piece for the Labour Government- that's our Robert-

Hi Rob Mate- how you doin' today-

Edited July 6, 2009 by KingCharles1st

[bomberbrown]

http://news.bbc.co.uk/1/hi/business/8136788.stm

[Guest sillybear2]

The BoE already had the powers necessary in 2005, a little thing called control of interest rates, that could have nipped the problems in the bud, but in August of that year they decided to cut rates and stoke more coal into the run away train.

[Injin]

They just want to force the banks to lend.

It's "blah blah blah new powers to force lending blah blah blah must get back to 2007"

[Wait & See]

The BoE already had the powers necessary in 2005, a little thing called control of interest rates, that could have nipped the problems in the bud, but in August of that year they decided to cut rates and stoke more coal into the run away train.

It must have seemed like a good idea at the time. Many Labour MP's had second homes.

[Guest sillybear2]

It must have seemed like a good idea at the time. Many Labour MP's had second homes.

Yes, what could possibly go wrong, somebody should have set up a website to warn them.

Edited July 6, 2009 by sillybear2

[SarahBell]

Oh insane. We mustn't lend irrespinsbily but to get us out of the mess caused by irresponsible lending, we've got to do some irrespoinsible lending...

[abharrisson]

http://news.bbc.co.uk/1/hi/business/8136788.stm

If there's a problem put a tax on it, it's the Labour way.

Why is it so hard for them just to have lending multiples? 3x salary end of story.

To be fair though this is a different scenario.. you could conceive of a situation where you want to restrict lending to british consumers but don't want to raise interest rates as this will have other unwanted effects such has increasing the value of the pound and potentially harming what industry we have left as a result.

using some technique outside interest rates to make borrowing more expensive and therefore reduce it could well have some merit.

[lowrentyieldmakessense(honest!)]

To be fair though this is a different scenario.. you could conceive of a situation where you want to restrict lending to british consumers but don't want to raise interest rates as this will have other unwanted effects such has increasing the value of the pound and potentially harming what industry we have left as a result.

using some technique outside interest rates to make borrowing more expensive and therefore reduce it could well have some merit.

let the free market set interest rates

price fixing always ends in disaster

[Guest sillybear2]

To be fair though this is a different scenario.. you could conceive of a situation where you want to restrict lending to british consumers but don't want to raise interest rates as this will have other unwanted effects such has increasing the value of the pound and potentially harming what industry we have left as a result.

using some technique outside interest rates to make borrowing more expensive and therefore reduce it could well have some merit.

The BoE always had powers to raise reserve requirements, forcing banks to deposit more funds with the BoE, but I suppose securisation blew a hole through that. They need to regulate the retail credit market, setting minimum underwriting terms, and I just can't see themselves being prepared to do that.

Edited July 6, 2009 by sillybear2

[abharrisson]

let the free market set interest rates

price fixing always ends in disaster

I am not sure we are all ready for the free market setting interest rates, especially in a globalised economy where some markets could be freer than others .. oink, oink.

[huw]

http://news.bbc.co.uk/1/hi/business/8136788.stm

If there's a problem put a tax on it, it's the Labour way.

Why is it so hard for them just to have lending multiples? 3x salary end of story.

The taxpayer gets stuck with the bill for bad debt so it's reasonable that borrowers should put something in the kitty up-front, pinching off moral hazard at the point it's created as well as limiting credit booms. It would make sense for the money to be hypothecated in a stimulus/rescue fund, instead of going into general spending. The more borrowing, the bigger the fund, which is exactly what you need (the tax rate could even scale to account for rising risk as debt/GDP increased).

The problem with a blanket 3x salary is that it's one-size-fits-all. The problem was fraud (including payslip fraud, which was used to circumvent fixed salary-multiples), not flexible lending.

[huw]

let the free market set interest rates

The free market still sets interest rates; debt-tax stops/reduces them externalising of the cost/risk of default.

[huw]

The BoE always had powers to raise reserve requirements, forcing banks to deposit more funds with the BoE, but I suppose securisation blew a hole through that. They need to regulate the retail credit market, setting minimum underwriting terms, and I just can't see themselves being prepared to do that.

Surely this only works for domestically-regulated institutions, what about the likes of Icesave or any other foreign bank entitled to operate here?

[Um_Bongo]

FFS can't we all stop pretending this was all an accident and that new tools/powers need dishing out to stop it happening again. The fact is it was GLOBAL ECONOMIC POLICY! It has been admitted to multiple times by the actors who did it. The only tool that is required is this one: DO NOT BLOW ASSET BUBBLES TO AVOID SHORT TERM PAIN.

[lowrentyieldmakessense(honest!)]

The free market still sets interest rates; debt-tax stops/reduces them externalising of the cost/risk of default.

tell that to the central banks and jpmorgan interest rate derivative department

[Guest sillybear2]

Surely this only works for domestically-regulated institutions, what about the likes of Icesave or any other foreign bank entitled to operate here?

Hrm, they still need a UK banking or credit licence.

[LiveAndLetBuy]

http://news.bbc.co.uk/1/hi/business/8136788.stm

If there's a problem put a tax on it, it's the Labour way.

Why is it so hard for them just to have lending multiples? 3x salary end of story.

...or let the banks that risk using higher lending multiples go bust?

[Si1]

It will try to stifle lending booms, of the kind seen between 2005 and 2007, as well as stimulating lending during recessions such as the current one.

the great house price bubble of 2005 to 2007 - there's a thought...

[Sinking Feeling]

One possibility is that banks should have limits on the amount they are allowed to lend relative to the amount of capital they hold.

Erm......isn't that the system that has been in place for the best part of 30 years under capital adequacy requirements?

Oh yes I remember now, they lent more than they should have done, then when they should have been declared bankrupt the government bailed them out. So there's no incentive anyway!

[interestrateripoff]

Erm......isn't that the system that has been in place for the best part of 30 years under capital adequacy requirements?

Oh yes I remember now, they lent more than they should have done, then when they should have been declared bankrupt the government bailed them out. So there's no incentive anyway!

Your forgetting they found how to lend more with off balance sheet lending. Rules are no good if you allow the participants to cheat.

Every bank that took part in this should just be nationalised and the assets run down. Wipe out the shareholders they allowed this to happen.

Although then you wipe out the pension schemes. Right nationalise them.

That creates a huge tax burden which the taxpayer can't meet.

Lets just declare everyone bankrupt and start again.

[ccc]

the great house price bubble of 2005 to 2007 - there's a thought...

The delusion knows no bounds.

I think this could be a worrying move. They will get the power to stop booms in lending. Well no worry about that now. All done and dusted. So what were the other powers they were wanting ? Oh yes - to get banks 'lending more' in times of recession.

Oh - how convenient. Just at that point precisely now. Very mmmm.