Bank of England says British banks need fresh capital

Graham_Devon

Oh and the BOE not acting because it doesn't want to be seen as the "killjoy" by the public for property speculation is a pretty depressing sentence when you think about it.

Thrugelmir

The BOE would like to see an orderly market decline. So a debate starts to focus peoples minds. There's no benefit to anyone if there were to be a market crash. Merely put further strain on the banks balance sheets.

Far easier for house owners to write off equity than banks to do likewise with debt.

wotsthat

Graham_Devon wrote: »

If as you say it's going to put lending under more pressure, why do you think at the same time, mortgage lending will continue to loosen!?

Because I think there's a momentum of increased lending underway now. That'll continue albeit at a slower rate of increase than we'd otherwise see.

Thrugelmir

wotsthat wrote: »

Because I think there's a momentum of increased lending underway now.

Mortgage lending was negative in 2011. Allowing for repayment of debt, new lending was less.

All lenders are playing the same game. Net lending margin is increasing.

wotsthat

Graham_Devon wrote: »

Peston has a blog on this. Amongst it is a plea from the BOE to have more powers over the new regularatory bodies to:

1. impose higher across-the-board capital requirements in boom years (what's known as a counter-cyclical buffer);
2. set specific targeted higher capital requirements for sectors that are overheating (such as property lending, for example); and
3. reduce the ceiling on the amount of gross lending a bank can make relative to their capital when the risks in the system as a whole are becoming excessive (a cap on the leverage ratio).

They also see a case for them to be able to impose ceilings to the amount any lender can provide for a mortgage relative to the amount of earnings of the borrower or relative to the property. i.e. no messing about, but a simple multiplier.

My advice to the BoE (I'll mention it when Merv calls me next) would be to not to overdo it, to implement changes gradually and to be 100% transparent.

It would be counter-productive to implement punitive changes rapidly. There would be a danger of household equity reduction which would perversely put pressure on banks.

The bit about reducing lending ceilings when risks in the system are becoming excessive looks quite dangerous. Can you imagine how lazy journalists would handle this in practice? "BoE warns house prices are going to crash!"

Who decides which sectors are overheating or have excessive risks anyway? The government/ BoE should be ensuring orderly markets exist so that overheating doesn't happen anyway.

To be honest I can't see there's much they'll realistically do that is likely to make lenders even more cautious than they are already.

HAMISH_MCTAVISH

wotsthat wrote: »

Because I think there's a momentum of increased lending underway now. .

Indeed.

Mortgage lending for new purchase up year on year for the last 7 months in a row. (Although this will now drop back a bit for a few months post stamp-duty holiday ending)

And we've been seeing slight increases in average LTV's as well.

Interesting that the FPC has realised they cannot use LTV or LTI restrictions as it would be politically intolerable , but want further public debate on the subject.

There's zero chance of that happening, so they may as well stop wasting their breath now.

Contra-cyclical capital adequacy requirements are actually a pretty good idea, but difficult to force the banks to feed them through in the downturns, when wholesale lenders are looking to lend to banks with higher, not lower, capital buffers.

So I suspect this too will be of little benefit in the real world.

What will actually happen is the following....

- The FPC will fart about for a few years trying to overengineer impractically high levels of financial resilience into the system

- The lack of economic growth this causes will become completely politically unsustainable for the government. And the bankers will be crucified twice. Once for causing the bust, and then again for preventing the recovery.

- They'll get told to back off and get back in the real world, and relax the rules.

- Growth will return and people will accept that you can never eliminate the boom/bust cycle. But it's worth having a few years of bust to get a couple of decades of boom.

.

wotsthat

Thrugelmir wrote: »

Mortgage lending was negative in 2011. Allowing for repayment of debt, new lending was less.

All lenders are playing the same game. Net lending margin is increasing.

I'm making a prediction that lending is increasing now and will continue to do so throughout the year.

Lenders can play more than one game. As margins increase on mortgages they'll be looking to find ways to increase the volume as well as margin.

HAMISH_MCTAVISH

Thrugelmir wrote: »

Mortgage lending was negative in 2011. Allowing for repayment of debt, new lending was less. .

Which as you well know is of little relevance.

Mortgage lending for new purchase has increased markedly year on year for the last 7 months in a row.

Net lending reductions just mean the owner occupation percentage is falling and total equity in the housing market is increasing, as fewer new mortgages are issued than old ones are repaid.

It's a sign of a dysfunctional lending market, and of banks jeapordising the economic recovery, but not of falling prices.

shortchanged_2

Looks like more bad news for the housing market. It looks like Melanie Bien had heard this before it was released, hence her comments the other day.

It is looking like they are starting to realise that there cannot be any notable recovery in the economy while house prices remain stubbornly high and continue to suck up a large chunk of household income. Maybe not so much now while IR's are low but they are realising the potential timebomb in the future.

HAMISH_MCTAVISH

shortchanged wrote: »

It is looking like they are starting to realise that there cannot be any notable recovery in the economy while house prices remain stubbornly [STRIKE]high[/STRIKE] low and continue to [STRIKE]suck up a large chunk of household income[/STRIKE] negatively impact household wealth.

Fixed that for you.