A member of the Monetary Policy Committee says a cap on LTVs is one way of preventing vulnerabilities in capital markets.
Speaking to the Federal Reserve Bank of Kansas City annual Conference, Charlie Bean delivered a speech on ‘Monetary Policy after the Fall’.
He says : “Varying margin requirements might be a more appropriate instrument for dealing with vulnerabilities building up in the capital markets more generally. Finally, there is the option of introducing direct constraints on the terms or availability of credit, for instance imposing maximum LTV ratios in the mortgage market.
“The best approach seems likely to involve a portfolio of instruments. And while experience of the use of these tools might be limited, it is not entirely a tabula rasa. In particular, a number of developing and emerging economies have experience in applying some of these instruments, while there are also lessons to be drawn from the past experience of some advanced economies too.”