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City watchdog proposes new curbs on risky lending by banks
Joe Murphy, Political Editor18.03.09
Banks today faced new curbs on lending and stricter oversight in an attempt to restore confidence in the financial industry.
Banks will be expected to publish more and clearer information in their accounts about the risks they are running. Secretive hedge funds in particular will be forced to open their books to scrutiny by the regulator.
Financial Services Authority chairman Lord Turner is not expected to propose curbs on all risk-taking, but that "systemic" risks be exposed and weeded out.
One proposal is expected to be a "backstop" limit on overall lending by banks compared with their assets, to supplement the existing Basel framework.
His report will be fed into a wider Treasury review of City regulation to be unveiled close to next month's Budget.
There was speculation he would call for mortgages to be limited to three times a borrower's salary as well as an outright ban on 100 per cent mortgages. The Standard understands the report puts the case for and against loans-to-value regulation and loans-to-income regulation, without reaching a firm conclusion.
Borrowers could be protected against future rises in interest rates, but new entrants to the housing market could struggle to raise large deposits.
The report is likely to back Gordon Brown's call for international regulators and central banks to work more closely together to spot early signs of overheating.
The FSA has made clear it wants to curb the culture of excessive bonuses for short-term gains.
Bob Penn, partner at law firm Allen & Overy, said there was a danger that heavy-handed regulation would drive banks abroad to "less regulated jurisdictions".
Lord Turner has promised his report will usher in "a revolution". It aims to address the weakness that FSA chief executive Hector Sants admitted last week, when he said the watchdog was not feared enough in the Square Mile.
Business Secretary Lord Mandelson today agreed that financial regulation has not "kept pace" with massive changes taking place in the global economy.
He told GMTV: "What happened, I think, was all the changes that were taking place internationally to the banking sector and the international financial system - what people call globalisation - was happening much further, much faster than anyone anticipated."
He added: "We did put in new regulatory systems after we came into office - we created the Financial Services Authority."
Challenged over the system's performance, he said: "It hasn't 'failed miserably' but... governance and regulation has not kept pace with those very profound changes in the global economy."
