Tuesday, September 3, 2013

General election commentary

Of house price bubbles in London and house price collapses in Northern Ireland

The UK looks set to repeat its traditional pre-election economic cycle which involves the incumbent government pumping up credit in the housing market. To this campaign the past Bank of England Governor made an offering of the Funding for (Mortgage) Lending Scheme and the new Governor has offered up “forward guidance” (for mortgage rates) and more recently this. The Bank of England will reduce the level of required liquid asset holdings. The effect will be to lower total required holdings by £90 billion, once all eight major banks and building societies meet the capital threshold. That will help to underpin the supply of (mortgage) credit…. But this time will be different!

Posted by quiet guy @ 09:08 AM (1967 views)
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One thought on “General election commentary

  • http://en.wikipedia.org/wiki/Macroprudential_regulation#Macroprudential_tools

    Macroprudential tools

    A large number of instruments have been proposed; however, there is no agreement about which one should play the primary role in the implementation of macroprudential policy.

    Most of these instruments are aimed to prevent the procyclicality of the financial system on the asset and liability sides, such as:
    Cap on loan-to-value ratio and loan loss provisions
    Cap on debt-to-income ratio

    The following tools serve the same purpose, but additional specific functions have been attributed to them, as noted below:

    Countercyclical capital requirement – to avoid excessive balance-sheet shrinkage from banks in trouble.
    Cap on leverage (finance) – to limit asset growth by tying banks’ assets to their equity (finance).
    Levy on non-core liabilities – to mitigate pricing distorsions that cause excessive asset growth.
    Time-varying reserve requirement – as a means to control capital flows with prudential purposes, especially for emerging economies.

    To prevent the accumulation of excessive short-term debt:

    Liquidity coverage ratio
    Liquidity risk charges that penalize short-term funding
    Capital requirement surcharges proportional to size of maturity mismatch
    Minimum haircut requirements on asset-backed securities

    In addition, different types of contingent capital instruments (e.g., “contingent convertibles” and “capital insurance”) have been proposed to facilitate bank’s recapitalization in a crisis event.

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