Sunday, April 22, 2012

HSBC chairman: Financial Policy Committee likely to harm lending

In a Telegraph article, HSBC's chairman Douglas Flint warns that the Bank of England's new Financial Policy Committee (FPC) is likely to harm lending.  Specifically, he thinks it could limit the ability to borrow from banks and increase the borrower's costs.

Is this a feature or a bug?

Its a feature if you think that restraining lending would have prevented the credit crisis.  Its a bug if you think that rationing credit will keep the economy from operating at its full potential.

Mr Flint said that the new committee - chaired by Bank Governor Sir Mervyn King - is likely to reduce capital in the financial system and, as a result, harm business lending. In an outspoken speech, Mr Flint said the committee’s pending statutory powers “could easily materially impact access to credit and its pricing.”... 
His comments come three weeks after Peter Sands, chief executive of Standard Chartered, blasted the new financial oversight committee’s approach as “extremely interventionist and extraordinarily blinkered.” Mr Sands said he was “dismayed” by the FPC’s call for extensive powers to control the UK’s financial system.... 
Mr Flint noted that the FPC is beginning “to articulate how it wishes to exercise its statutory powers” including sectoral capital requirements – where banks would have to post more money against companies in specific risky sectors – and possibly a time varying liquidity tool. 
“I see this as a significant new risk for you all to get to understand, as a change in sectoral capital risks could easily materially impact access to credit and its pricing,” he warned.... 
The FPC, which has been meeting ahead of its powers hitting the statute book, was designed in response to the 2008 financial crisis, and intended to monitor the economy of the UK, looking at macro-economic and financial issues.
Readers know that I prefer not to have to rely on regulators to restrict credit.  I prefer that the market participants have access to all the useful, relevant information they need in an appropriate, timely manner so they can make a fully informed investment decision.

If this type of data is available, then market participants can exert discipline on the banks so that credit is properly priced throughout the credit cycle. 

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