The Bank of England has defended its decision not to ask for control of LTV ratios for the Financial Policy Committee, arguing that the power to limit mortgage borrowing should rest with the government, not unelected regulators.
Last month the interim FPC published a wish list of macro-economic tools it wants the committee to have at its disposal when it gets up and running next year.
The Bank asked the government for a sectoral capital buffer tool which would see it able to require higher capital to be held against exposure to certain sectors. But it drew criticism for not asking for a lever to control LTV ratios.
Peter Sands, chief executive of Standard Chartered, accused the committee of asking for tools which also stop people borrowing too much.
Writing in the Financial Times last week, Paul Tucker, deputy governor for financial stability at the Bank, says: “Outright bans on households taking out loans with high LTVs – including banning families borrowing from outside the UK financial system – would in the view of many of us be a matter not for the FPC but for the government to pursue directly.
“The higher the requirement [of the sectoral capital tool], the closer it approximates to constraining portfolios of high LTV loans. But it would not cut across lenders’ judgements on the creditworthiness of individual borrowers.”
Tucker adds that it will be particularly important to justify any sectoral intervention by the Bank.
The Treasury has yet to say whether it will give the FPC the tools it has asked for.