(Adds comments on Help to Buy scheme, transcripts of MPC
By David Milliken and William Schomberg
LONDON May 20 Low volatility in financial
markets is "eerily reminiscent" of the run-up to the financial
crisis, even as central banks face the challenge of unwinding
huge stimulus programmes, a Bank of England policymaker said.
But BoE Deputy Governor Charlie Bean also said in a speech
that "the risk of major financial problems crystallising in the
advanced countries should be much lower" thanks to a combination
of better-capitalised banks, lower leverage levels and more
powers for regulators to deal with troubled lenders.
Bean, who is due to retire from the bank at the end of June,
said his fellow central bankers would face the tough challenge
of communicating their intentions as the time approaches to wind
down extra support for their economies.
"I do not expect central banks' collective management of the
exit from the present exceptionally stimulatory monetary stance
will be easy," he said.
"The bottom line is that we may yet encounter a few potholes
on the way to the exit."
BoE Governor Mark Carney last week also said he expected
volatility in financial markets would grow as the time came to
return monetary policy to more normal levels.
Bean used his speech on Tuesday to explain the BoE's actions
since the financial crisis, including its decision last year to
start giving more explicit guidance on when it might start to
raise interest rates.
"Shorter-term market interest rates have moved higher since
guidance was introduced, but no more so than is justified by a
string of unexpectedly strong activity indicators," Bean said.
Bean also said that in future, the BoE's monetary policy and
its macroprudential policy for stemming financial stability
risks might move in opposite directions.
Tighter policy for containing such risks could in principle
help keep interest rates lower for longer and support the
recovery, Bean said.
HELP TO BUY
On Sunday BoE Governor Mark Carney described the rapid rise
in British house prices - which are up around 10 percent over
the year - as the biggest domestic threat to financial
stability, and Prime Minister David Cameron agreed earlier on
One worry for many economists is the government's Help to
Buy scheme, which widens access to high loan-to-value mortgages
and which the BoE is required to review in September.
Bean said the BoE would say before then if it believed the
scheme was creating financial stability risks. But he played
down concerns, saying it only supported a relatively small
number of mortgages, and was not responsible for the sharpest
price rises which are concentrated in London.
"People should keep it in perspective," he said. "The
fundamental problem is not enough houses for the number of
households," he added, echoing comments from Carney.
In principle, the scheme could continue even if the BoE
required banks to tighten other mortgage lending, Bean said.
Earlier on Tuesday, mortgage lender Lloyds said it
would limit mortgages to a maximum of four times a borrower's
annual earnings when it is lending more than 500,000 pounds
($842,400) on a property.
Bean also said he opposed efforts to emulate the U.S.
Federal Reserve in publishing transcripts of future Monetary
Policy Committee meetings.
"I'm not personally a huge enthusiast for transcripts in
general," he said, adding that it would damage the free flow of
discussion and encourage policymakers to effectively read
statements to each other.
(Writing by William Schomberg; Editing by Alison Williams/Ruth