We may limit LTVs, says FSA boss
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Lord Adair Turner, chairman of the Financial Services Authority, says new macroprudential policy tools are needed to manage unstable cycles of credit, and these could include limits on LTVs.
Speaking at a lecture in London last week, Turner told attendees: “We must take away the punch bowl before the party gets out of hand.”
He says this could include a focus on borrowers including limits on LTVs, either applied continuously or varying throughout the cycle.
Turner says credit can play a part in driving asset price cycles, and this can in turn drive credit supply in a self-reinforcing and destabilising process.
He warns that using a ’one size fits all’ policy approach to control asset price bubbles in commercial or residential property could have the unintended consequence of restricting credit to sectors of more economic benefit.
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