Maximum Loan-to-Value ratios could be used instead of imposing limits on lenders, he said, although the full “toolkit” is still to be defined and could also include lender saving buffers to enable lending to continue in a downturn.
The Financial Policy Committee (FPC), the third regulatory arm, will be established to “scan the horizon to spot new risks like a bank collapse and control these levers accordingly, he said.
Turner explained the new body will “give us policy levers to take away the punch bowl before the party gets out of hand, levers simply not available – in this country or elsewhere in the developed world – before the crisis hit.”
“Taking away the punch bowl, however, will not always be popular,” he admitted.
“At various points in the cycle it could mean restricting mortgage credit when individuals are buying houses in a rising market, and limiting credit to real estate investors who enjoy the rising prices which easy credit itself helps produce. It means slowing down credit booms which, as long as they last, make governments popular and swell their tax revenues,” he added.
A further risk regulator in Europe, the European Systemic Risk Board, will add another layer, yet to be assimilated into the regulatory picture.
Last June, the Chancellor George Osborne announced the closure of the Financial Services Authority (FSA) within two years and a new three-pronged regulatory body divided between Bank of England subsidiary the Prudential Regulatory Authority, independent body, the Consumer Protection and Markets Authority and the FPC.
Turner said: “That division should eventually deliver major benefits – but implementing it will not be easy.”
He said while the new structure will resolve problems created by the present division of responsibility between the Bank and the FSA, it would create new ones between the PRA and the CPMA where jurisdiction was unclear.
Turner said: “We are focused on minimising the disruption for regulated firms, and on ensuring that the ongoing cost of the two separate organisations [the PRA and the CPMA] is no higher than it would be for the integrated FSA,” he said.
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