Former Monetary Policy Committee external member Adam Posen is calling on the Bank of England to boost mortgage lending by directly buying securitisations through quantitative easing.
Speaking to the Treasury select committee today to scrutinise the last MPC meeting, Posen said it is a “religious belief” within the MPC that QE is only used to buy gilts.
When asked by Tory MP Andrea Leadsom whether QE can be used to boost the housing market by buying securities, Posen replied: “Absolutely, I support it. I think that would be a good idea.”
The residential mortgage-backed securitisation market has been moribund since 2007 when the credit crunch hit. The lack of investment in RMBS has cut funding lines for lenders and is seen as a key factor holding back gross mortgage lending.
Posen, who left the MPC in August after three years on the committee, claimed he had pushed for the MPC to buy other assets such as corporate debt.
He also called for much greater accountability at the Bank of England, describing the incoming Bank of England governor as ”too powerful”. He warned changing the Bank’s target from inflation to gross domestic product would be a “serious mistake”.
In a wide-ranging session, Posen said he also wants to see the break-up of Government-owned banks, the Royal Bank of Scotland and Lloyds Banking Group.
He said: “You judge it solely by creating a more competitive banking system in the UK leading to lower prices, more diversity of products. They don’t need to be broken up into, say, NatWest or RBS, and could be seperated by selling branches as happened with the Co-operative Bank. The important thing is to get a diversity of players and competing banks.”