Bank chiefs warn over social risk of caps on mortgages
Published 19/05/2015 | 02:30
Fifteen leading financial bosses have warned that measures such as the Central Bank's mortgage deposit rules could end up creating unknown risks.
In a joint statement put out by the World Economic Forum, the heads and senior executives of a number of international banks, including HSBC, Zurich Insurance, and UBS, said so-called macro-prudential rules were a good thing to ensure financial stability.
But they warned that more research was needed to gauge if the measures will be effective, or whether they will end up generating additional risks.
And they warned that managing credit supply for property - such as the Central Bank rules - could impact on homeownership.
Macro prudential policy is relatively new in developed economies and refers to using targeted, often temporary intervention to stop asset bubbles that could destabilise the broader financial system.
The Central Bank unveiled its own macro prudential policies earlier this year when it announced new rules on mortgage lending to stave off another credit-fuelled bubble.
The rules stipulate borrowings by first-time buyers up to €220,000 will be approved with a deposit of as little as 10pc. But any amount over €220,000 will require a 20pc deposit for that portion of the mortgage. Non first-time buyers will have to come up with a 20pc deposit.
Other countries have also looked at measures to counter the threat of another crisis.
In the UK, for example, the Bank of England Financial Policy Committee has introduced curbs to cool Britain's mortgage market in a way that avoids having to raise interest rates.
In the joint paper, the group of 15 chief executives, chairmen and senior executives expressed their support for macro prudential policies as a potential tool for achieving the right balance between financial stability and economic growth.
But they warned more work needed to be done to ensure unknown risks were mitigated.
"Some of those tools may have societal consequences, and society and policy-makers will face some trade-offs," the paper said.
"For example, managing credit supply to real estate is likely to have implications for home ownership and will have different impacts on various segments of society.
"Similarly, the use of interest rates in the context of financial stability may also have a distributional impact."
The Central Bank's rules have received a mixed response from experts.
The International Monetary Fund said the rules will protect both borrowers and the banks. Ratings giant Moody's said the rules were "a sensible way or reducing the risk of another credit-fuelled housing boom".
The Economic and Social Research Institute (ESRI), however, criticised the timing of the new measures.
It claimed the measures were premature and would hurt the recovering market, potentially driving up rents.
The think-tank also said first-time buyers should have been treated the same as others.