FSA chairman Adair Turner has called for the creation of a new official body with powers to force banks to curb lending during financial bubbles.
Turner told the BBC at the World Economic Forum in Davos that he sees the new body as a macro prudential committee, sitting between the Bank of England and the FSA.
It would push up the cost of lending for banks to commercial property businesses by forcing banks to hold more capital relative to their property loans if prices increase too quickly.
He said that a similar approach would apply to the mortgage market if house prices were rising too quickly, where the committee could force banks to reduce their loan to value limits.
He said: “I think we have got to return to saying there is a new policy lever that we need and it addresses the issue of the quantity of credit being extended in the economy and in particular to those sectors which are most likely to be subject to asset price and credit cycles.”
Bill Warren Compliance managing director Bill Warren believes that Turner’s calls are anti-consumer, anticompetitive and would add to problems for the mortgage industry.
He says: “This all comes back to the FSA’s supervision of lenders. It needs to make sure lenders’ risk policies and LTVs are sensible, rather than artificially reducing lending.”