On 15 Aug 2017, at 17:56, Jon Newman wrote:

Emile,

I’m very confused. If UK banks now have to have sufficient capital buffers to prevent a future financial crisis, why is Mark Carney concerned about the level of personal debt?
Surely the banks, being the prudent types under this new tougher regime, have already considered the potential for non-payment of debt within their Balance Sheets, as undoubtedly would their Auditors, no?

Under the FCA rules for mortgages, all lenders need to stress-test borrower’s affordability, often by assuming a much higher UK Base Rate.
I’m not entirely sure what % they consider, but I have seen comment on the internet of people being assessed at around 6% to 7%.

Surely the same ought to apply to the banks/lenders too?

Kind regards,

Jon

Emile’s response:

I completely agree, Jon.

It shows that Carney and the others have no faith or belief in the ability of their own safeguards to withstand another systemic shock. They don’t have the means of setting buffer levels anyway.

No buffers based on Basel statistics can withstand the looming tsunami! And auditors apparently don’t like to make value-assessments that require good sense and objective judgment. No boxes to tick!

Thanks for the comment – always good to hear from an intelligent source!

Emile
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Emile Woolf
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