Bank Of England May Get New Powers To Rein In Banks

[Sancho Panza]

BBC 26/11/13

'The Bank of England is to review whether it needs more powers to control banks' balance sheets. Bank governor Mark Carney said Chancellor George Osborne had asked the Bank's Financial Policy Committee (FPC) to review its powers.

The FPC regulates banks, but not how much capital they must hold in relation to total assets - the leverage ratio.

He also queried the quality of official data and called claims about RBS's treatment of small firms "shocking".

On the leverage ratio, Mr Carney said he personally felt the FPC should have this power.

Being able to vary the leverage ratio helps to rein in risk-taking by banks.

The governor, formerly head of Canada's central bank, told the Treasury Committee on Tuesday that regulators in his home country had similar powers, and this had helped them during the global financial crisis.

He said: "If I could pick one element that was essential to the performance of the Canadian banking system during the crisis, it was the presence of a leverage ratio."

In a letter to Mr Carney, disclosed by the Treasury Committee, Mr Osborne wrote: "Now is an appropriate time for the FPC to consider whether and when it needs any additional powers of direction over the leverage ratio, how it should use these powers and how any new powers would fit in with the rest of its macro-prudential tool-kit."

Mr Carney told the committee that he expected the FPC's review to take about a year, and hoped that new powers would be granted "quickly thereafter".

International regulators are already finalising details of a leverage ratio, although these may not come into force for several years.

BBC business editor Robert Peston said: "The Bank of England hopes that the imposition of a leverage ratio will force banks to have a bigger buffer of loss-absorbing equity to protect them against the inevitable shocks that lie ahead.

"The absence of a binding leverage ratio in places like the UK meant that in the boom years banks grew at a highly dangerous rate by loading up on those categories of loans and investments - such as mortgages and assorted bonds - which were deemed low-risk by short-sighted regulators."'

[TheCountOfNowhere]

Is this the same BoE who can't tell me how they define a housing bubble.

How will they know when to use the reigns ?

[Sancho Panza]

Is this the same BoE who can't tell me how they define a housing bubble.

How will they know when to use the reigns ?

When Mervyn falls asleep?

[FreeTrader]

I thought Carney was impressive before the Treasury Committee this morning in contrast to some of the questioning MPs.

John Mann took the prize for being the biggest tool in the room and Carney handled his cringeworthy accusations with dignity – showing just the right mixture of simmering anger and polite rebuttal.

On the housing market Carney said that they were expecting the upwards momentum to continue until the middle of next year when things would probably level off. Spencer Dale said that it was quite likely we would see an expansion in household debt in due course, but only on the back of higher real income growth. He also said that interest rates would probably rise in a manner that minimised any shock to indebted households.

One thing that came out was that Carney and his colleagues aren't satisfied with the performance of the ONS. In particular they want to see a properly formulated flow of funds statement (presumably like the Fed's Z.1 statistical release). Although Carney was diplomatic, Charles Bean obviously sensed that the Governor's responses were in danger of being blown out of proportion by the press and he jumped in to assure the Committee that the BoE and ONS periodically have meetings to exchange views on these issues. Not sure this really worked and I imagine the ONS won't be happy.

[Apologies to Sancho for being somewhat off-topic.]

[wonderpup]

So the guy who created help to buy is suddenly worried that the banks might be tempted to take foolish lending risks?

Surely his HTB scheme is designed to do exactly this?

What is wrong with these people?

[TheCountOfNowhere]

Bubble??? Bubble?? oh you are so confused this is a boom not a bubble so there is no need to define what a bubble is as we do not have one, what we have now is a boom.

You're half right about the boom.

Edited November 26, 2013 by TheCountOfNowhere

[Dorkins]

Bubble??? Bubble?? oh you are so confused this is a boom not a bubble so there is no need to define what a bubble is as we do not have one, what we have now is a boom.

No we don't have a boom, we are experiencing a steady and sustainable return to the normal and healthy economic trajectory we were on in 2007 (a few months before the global financial system collapsed).

[cybernoid]

No we don't have a boom, we are experiencing a steady and sustainable return to the normal and healthy economic trajectory we were on in 2007 (a few months before the global financial system collapsed).

The financial system thing was all americas fault, thats where it began that excellent and competent economist gordon brown said so. He abolished boom and bust.

We need to get back to normal where house prices triple in 10 years, that way we can all be rich without having to go to work. Now if thats not normal and sustainable I dont know what is.

[cashinmattress]

Oh, poor, poor Gordon Brown and his feckless AND failed policies.

[onlyme2]

Mr Carney told the committee that he expected the FPC's review to take about a year,

A year of navel gazing and pulling in another year's salary and pensions.

The crooks/liars in the banking sector are at all levels.