Imposing the same capital requirements on non-banks as banks could force these lenders out of the market or become banks damaging competition, warned the two trade bodies in their joint-submission to the FSA’s Mortgage Market Review: Responsible Lending consultation.
Banks comply with BIPRU regulations, which, amongst other things, set out the level of capital a bank must hold, whereas non-banks comply with a simpler set of requirements, entitled MIPRU, reflecting the fact non-banks don’t have retail depositors to protect.
The submission argues that the FSA’s analysis of the non-bank sector does not accurately reflect market realities, for example, in its assumption that non-banks encouraged the mainstream banking sector to undertake high risk lending.
The submission puts the importance of increasing competition in lending markets and said it is wrong to equate high-risk lending with irresponsible lending.
Peter Williams, IMLA executive director, said: “For example, some higher risk lending categories such as lending above 100% LTV and lending on new build city centre flats did create heavy losses at some deposit takers but non-banks were not at the forefront of the lending.
“We recognise that non-banks need to be adequately capitalised, but forcing them to operate under the same capital requirements as banks is overly restrictive and could make it uneconomic for some non-bank lenders to operate,” said IMLA.
CML director general Michael Coogan said: “Non-banks could play an important role in helping re-build competitiveness in a mortgage market in which lending has become concentrated in the hands of a few large banks and building societies.”
Instead the trade bodies argue the FSA could achieve the same policy goals with a MIPRU rule change. This could include an increase in the capital requirement for on-balance sheet regulated mortgage assets from 1% to 2.8% to bring it in line with banks’ capital requirements for mortgages with a loan-to-value ratio of 80% or less, they said.
