At the height of the eurozone crisis the Bank of England warned the Treasury that it needed a comprehensive contingency plan to prop up Britain's banks, documents published by the central bank have revealed.
Bank policymakers were so concerned about the potential impact of the turmoil in the eurozone that they told the Treasury its contingency planning should be as wide-ranging as possible.
The discussions of the Bank's financial policy committee (FPC) – set up by the coalition to spot future risks in the financial system – were not made public in October 2011 for fear of further destabilising the situation.
The FPC has decided to release the information now as the eurozone situation is no longer such a cause for concern and new rules are in place to make it easier to resolve troubled banks.
"The committee made an initially private recommendation to HM Treasury that its contingency planning should be as comprehensive as possible and include arrangements for recapitalisation, and the restructuring of bank liabilities in circumstances in which their survival was threatened," the FPC said.
"It judged that publishing on 3 October 2011 this recommendation in the record of its meeting would be contrary to the public interest given the risk of further undermining already fragile market sentiment," the FPC said on Tuesday, publishing the record of its June meetings.
At the time in 2011, the first bailout of Greece was crumbling and fears were mounting about the troubled economies of a number of countries in the eurozone.
"The committee thought that the Treasury should prepare for a full range of eventualities. In some especially severe scenarios, more far-reaching solutions might be required, which some members of the committee felt should extend to the potential writedown of some private-sector holdings of bank debt," it added.
The latest record also shows there was a detailed debate on the FPC about how to tackle the current situation in the mortgage market.
Last week the Bank of England indicated a further 20% rise in house prices by the first quarter of 2017 could be tolerated before measures to cool the market would have any impact.
These measures involve preventing mortgage lenders allocating more than 15% of their loans to customers needing to borrow more than four and half times their income – and ensuring customers were able to maintain their payments if interest rates were to rise to 7%.
According to the record of the June meeting, there was a discussion about where the cap on lending should be placed.
"The committee discussed the pros and cons of setting the share limit based on the volume or value of mortgages that banks could extend beyond the LTI threshold.
On the one hand, limiting the volume of mortgages extended above the threshold would act directly to limit the proportion of households that could become highly indebted from mortgage borrowing.
On the other hand, a values measure would help to capture the fact that any drop in non-mortgage spending in the event of mortgage distress by a high-income household might have a greater impact on aggregate consumption," the FPC said.
"The committee recognised that neither measure was ideal in isolation, but that having a dual limit would be complicated.
Members therefore to set the policy as limiting the volume of mortgages above the threshold and to ask the PRA in parallel to monitor values of mortgages extended above the threshold," the FPC said.
theguardian.com
Bank policymakers were so concerned about the potential impact of the turmoil in the eurozone that they told the Treasury its contingency planning should be as wide-ranging as possible.
The discussions of the Bank's financial policy committee (FPC) – set up by the coalition to spot future risks in the financial system – were not made public in October 2011 for fear of further destabilising the situation.
The FPC has decided to release the information now as the eurozone situation is no longer such a cause for concern and new rules are in place to make it easier to resolve troubled banks.
"The committee made an initially private recommendation to HM Treasury that its contingency planning should be as comprehensive as possible and include arrangements for recapitalisation, and the restructuring of bank liabilities in circumstances in which their survival was threatened," the FPC said.
"It judged that publishing on 3 October 2011 this recommendation in the record of its meeting would be contrary to the public interest given the risk of further undermining already fragile market sentiment," the FPC said on Tuesday, publishing the record of its June meetings.
At the time in 2011, the first bailout of Greece was crumbling and fears were mounting about the troubled economies of a number of countries in the eurozone.
"The committee thought that the Treasury should prepare for a full range of eventualities. In some especially severe scenarios, more far-reaching solutions might be required, which some members of the committee felt should extend to the potential writedown of some private-sector holdings of bank debt," it added.
The latest record also shows there was a detailed debate on the FPC about how to tackle the current situation in the mortgage market.
Last week the Bank of England indicated a further 20% rise in house prices by the first quarter of 2017 could be tolerated before measures to cool the market would have any impact.
These measures involve preventing mortgage lenders allocating more than 15% of their loans to customers needing to borrow more than four and half times their income – and ensuring customers were able to maintain their payments if interest rates were to rise to 7%.
According to the record of the June meeting, there was a discussion about where the cap on lending should be placed.
"The committee discussed the pros and cons of setting the share limit based on the volume or value of mortgages that banks could extend beyond the LTI threshold.
On the one hand, limiting the volume of mortgages extended above the threshold would act directly to limit the proportion of households that could become highly indebted from mortgage borrowing.
On the other hand, a values measure would help to capture the fact that any drop in non-mortgage spending in the event of mortgage distress by a high-income household might have a greater impact on aggregate consumption," the FPC said.
"The committee recognised that neither measure was ideal in isolation, but that having a dual limit would be complicated.
Members therefore to set the policy as limiting the volume of mortgages above the threshold and to ask the PRA in parallel to monitor values of mortgages extended above the threshold," the FPC said.
theguardian.com
No comments:
Post a Comment