The chancellor of the exchequer said the Financial Services Bill would give the Bank of England’s Financial Policy Committee powers to “alter the maximum loan to value ratios in mortgage lending to curb a sharp, unsustainable rise in house prices.”
The new FPC, chaired by the governor of the Bank of England, would also be able to force banks to hold more capital to stop credit bubbles growing out of control, as part of reforms the chancellor said would “affect the bread and butter of people’s daily lives”.
He told MPs in the Commons: “This FPC should act symmetrically...Its job is not just to try to moderate a credit boom but to try to alleviate a credit bust.
“The precise tools we give to the FPC are yet to be determined. I freely accept that we are largely in un-chartered territory in policy making here or indeed anywhere in the world.
“But surely the experiment of making no attempt to moderate the credit cycle, let the bubbles grow and burst and then clean up afterwards, has been an unmitigated disaster and I think we would be failing if we didn’t look for an alternative approach.”
