In a speech at the European conference on Banking and the economy at Southampton University last night, he said that if credit supply to the economy was left to its own devices it could result in harmful booms and busts in credit extension.
Instead, he said that macro prudential policy levers, such as those for which the Financial Policy Committee would be responsible, could be vital in creating the optimal level of credit in the economy.
Turner said its tools could include loan-to-value ratios on mortgages varying over the cycle, but added that more work was needed to provide a coherent outline.
“Possible tools within the tool kit include countercyclical liquidity requirements, or countercyclical borrower constraints – operating for instance via changes in maximum loan-to-value or loan-to-income ratios in residential or commercial real estate mortgages,” said Turner.
He added: “There are many complex issues relating to the appropriate design of these tools. But in principle it seems likely that we can identify tools which in some combination will be able to lean against the upswing of the credit cycle, mitigating excesses of the type which led to the last financial crisis.”
