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LTVs could be capped to cut risk

Bean
Bean: ‘Direct constraints’

Bank of England deputy governor Charles Bean has hinted that regulators may be considering caps on loan to value as part of a range of measures to tackle risky lending.

Speaking at the Federal Reserve Bank of Kansas City annual conference in Wyoming last Saturday, Bean said “direct constraints” on lending are one of a number of tools that regulators can use to try to stave off credit booms. He said: “There is the option of introducing direct constraints on the terms or availability of credit, for instance imposing maximum loan-to-value ratios in the mortgage market.”

But he added: “The best approach seems likely to involve a portfolio of instruments.”

Bean said higher interest rates would not have been enough to prevent the credit boom which led to the crunch. He said: “Monetary policy seems too weak an instrument to reliably moderate a credit/asset price boom without inflicting unacceptable collateral damage on activity.”

First Action Finance head of communications Jonathan Cornell says: “The Bank of England and the FSA are trying to create a financial system that is robust and does not lead to excess.”

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