LONDON, Jan 15 (Reuters) - Bank of England Governor Mark Carney and other members of the Bank’s Financial Policy Committee appeared before the Treasury Select Committee in Britain’s parliament on Wednesday.
Highlights of their comments are below.
“Our intention is to fully implement it. We have to see how Europe translates this into European regulation ... we would consider adjustments, I don’t want to speak for the committee, but my personal view is we would consider adjustments in calibration as opposed to definition.”
“The presumption is ... that it will be at least 3 percent, I think that is a reasonable presumption, at least 3 percent. As we apply this definition in the UK ... we will give thought to calibration .... and I have indicated in the past my personal, I am not speaking for the committee, but my personal inclination is that we would gross up, not jack up, but gross up whatever the base level is for a ring-fenced bank and for systemic banks in order to ensure that leverage ratio fully performs its function.”
CARNEY, ASKED IF LENDERS WILL HIT A “BRICK WALL” ON EXPIRY OF FUNDING FOR LENDING SCHEME
“I would say no. Our observations are that funding conditions for commercial lenders are very strong. And secondly, what the FLS was becoming relative to its original spirit - to get funding costs down from extreme levels and support the funding market - to be consistent with that spirit, it would become a backstop-type facility, something that banks would withdraw in the event of disruptions to funding markets.”
“Just breaking up an institution doesn’t necessarily create a viable or more intensive competitive structure.”
CARNEY, ASKED IF HE AGREES THAT CRUDE BONUS CAP IS NOT BEST WAY TO CONTROL PAY
”We intend to consult to further strengthen to do two things potentially this year, potentially to lengthen the deferral process so that the deferral of compensation is longer than five years ...
“We would rather see more deferral, more equity and this ability to take it back when those risks come to light.”
“Our general expectation has been for a continuation of current momentum - house price momentum, mortgage activity, credit growth momentum - into 2014, before decelerating around the middle of 2015, towards 2016, towards growth in terms of debt - mortgage and total household debt - more approximating the rate of growth of incomes.”
CARNEY ON IMPACT OF HELP TO BUY PROGRAMME TO HELP HOMEBUYERS
“So we are watching it, we do get the statistics around it, it is still quite a modest scale relative to the scale of the overall market.”
CARNEY ASKED ON RISK FROM COMBINED LOW MORTGAGE RATES, HIGH DEBT-EQUITY RATIOS, AND WEAK WAGE GROWTH
“Collectively they speak to some of the potential risks at this juncture. That is one of the reasons, taking the interest rate point in isolation - and disciplined lenders are doing this already - that it makes sense to look at households’ ability to service their mortgage, not just at the current 2.2 percent best floating rate on a two-year fix on a mortgage, but actually where that rate could be five years out, seven years out and under various income scenarios...”
“We look at a wide range of metrics of household balance sheets, household indebtedness, actual and perspective. As you can appreciate, there is no one metric that is the predictor of future financial problems. But I would say that while level is important, servicing ability is that much more important ... Rate of change, particularly relative to historic trends, tends to be a better predictor, in terms of credit, aggregates and within specific sectors, tends to be a better predictor of future problems than absolute level.”
”I believe the vulnerability of all major advanced economies - the only prudent operating principle - is that the vulnerability is medium to high.
“The reports we’ve received, and our understanding, is that the cooperation between public and private has improved. I don’t think this an area where we can relax.”