As part of the House of Commons Treasury Committee’s Independent Commission on Banking report, oral and written evidence out today, John Kay of Cass Business School said on 18 October 2011 another property bubble could occur and that banks should be forced to focus their businesses on specific areas of the market.
Under Committee questioning, Kay responded: “I do not think we have done very much to stop there being another property bubble, particularly in the commercial property market.
“That takes me back to the point I made earlier that I would like to see a lot more siloing of banking activities so that we can direct policy to particular areas of banking instead of doing what we have been rather unsuccessfully doing in the last three years, which is attempting to pull these very long and bendy strings on universal banks in order to have some specific part of the universal bank to do what it is we want.”
Elsewhere in the report, Andy Caton, corporate development director at Yorkshire Building Society, told the committee on 26 October 2011 that in the lead up to the financial crisis firms like Northern Rock had been lending irresponsibly due to their position as challengers to bigger lenders and that the entrance of a challenger bank could have similar consequences.
“We saw just that behaviour in the mortgage market, from players like Northern Rock, where we had illogical pricing, if you like, which created competitive distortions, ultimately was not in customers’ interests, ultimately created other knock on consequences where, for example, smaller players might have gone at the risk curve for the wrong reasons because they were squeezed out of the core market.”
Stephen Hester, chief executive of the Royal Bank of Scotland, also appeared before the panel on 23 November 2011 and said that through the bank’s Northern Ireland-based Ulster Bank brand it had been exposed to billions of pounds of Irish mortgage debt over the last few years.
When asked by Jesse Norman, Conservative MP for Hereford and South Herefordshire, what his bank’s total exposure to Irish debt was, Hester responded: “It is still between £40bn and £50bn including Northern Ireland. From memory it is about £35bn in Ireland itself. A lot of that is domestic mortgages.”
