Regulators should target loan serviceability to head off trouble

Posted on September 21, 2013 by | 0 Comments

ALMOST out of nowhere, it seems, international regulators are not just talking about macroprudential controls over bank lending but introducing them.

There is now mounting pressure on the Australian Prudential Regulation Authority to follow suit.

Despite the host of new regulatory requirements imposing higher capital requirements, leverage ratios, tougher liquidity rules and the like since the global financial crisis, there is a significant push on for another layer of regulation.

In New Zealand, Norway, Sweden, Switzerland and Canada, new restrictions on high loan-to-valuation-ratio lending have already been introduced, while Britain is contemplating whether it needs to act.

The push for this extra layer of regulation, of home lending in particular, stems from fears that new asset bubbles are emerging within developed economy housing markets.

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