My question is do they have any teeth? Could they have forced the banks to do what they wanted them to do?Could, or should? They made no effort to prevent people borrowing large multiples of earnings, despite their 'guidelines'.
How independent is the Central Bank anyway? Maybe government policy prevented them intervening? I doubt it though, given they always portrayed a pretty rosy picture, so I doubt they had the will to do so, regardless of any political intervention.
Wouldn't this contradict with your laissez-faire principles, i.e. "You cannot help men permanently by doing for them what they could and should do for themselves". Surely we should just let the banks fail (that's how the free market works - right), and then take it from there?Does the Central Bank have the power to limit or cap the loan to value ratio of mortgages that Irish banks (and other banks operating in Ireland)?
Wouldn't this contradict with your laissez-faire principles, i.e. "You cannot help men permanently by doing for them what they could and should do for themselves". Surely we should just let the banks fail (that's how the free market works - right), and then take it from there?
Couldn't agree more. Banks should be allowed to fail.
Indeed but I would have thought that the whole reason for having a Financial Regulator and a Central Bank in the first instance was to ensure that politics would not affect the whole process of governance? Imagine if the Bank of England could not interest rates upwards because of political pressure?Maybe they should have limited all mortgages to 80% LTV, but then there would have been a political backlash from FTB's who could not have bought houses. They would not have appreciated that the FR was doing them a favour.
Indeed but I would have thought that the whole reason for having a Financial Regulator and a Central Bank in the first instance was to ensure that politics would not affect the whole process of governance? Imagine if the Bank of England could not interest rates upwards because of political pressure?
If you tell me your opinion then I'll answer your question but I will not be replying to any more posts from you where your only contribution is to have a go at me without offering anything constructive to the thread.Wouldn't this contradict with your laissez-faire principles, i.e. "You cannot help men permanently by doing for them what they could and should do for themselves". Surely we should just let the banks fail (that's how the free market works - right), and then take it from there?
But the free market is an artificial construct and regulation is required to keep it in existence.Couldn't agree more. Banks should be allowed to fail.
Although I do feel obliged to state that the existence of the ECB and their ability to dictate interest rates (price fixing of money) is somewhat far removed from a laissez-faire system.
Maybe they should have limited all mortgages to 80% LTV, but then there would have been a political backlash from FTB's who could not have bought houses. They would not have appreciated that the FR was doing them a favour.
Brendan
This does not sound like very strong action against EBS for ignoring their guidelines though does it? I also share Purple's concern on whether the FR actually has enough power to do it's job effectively or is it simply the case that it was negligent in it's role these last years. If it doesn't have enough power to fulfill it's role than that would need to be addressed fairly urgently. If it was simply negligent then heads should be rolling in the FR. Simple as that really.They did take action on the lending practices. For example, when the EBS ignored the stress testing, the FR pulled them in over it.
The FR is not a democratically elected body though. It does not have to pander to the masses; it simply has to ensure that the Irish financial system is sound. This they were not able to do so the reasons they failed need to be uncovered to prevent us reaching this point again.The FR was in a difficult position. They were concerned. They did implement stress testing. They did call for caution. Maybe they should have limited all mortgages to 80% LTV, but then there would have been a political backlash from FTB's who could not have bought houses. They would not have appreciated that the FR was doing them a favour.
Restricting LTV would have slowed down the buying process as buyers would have had to come up with deposits (i.e savings) but there were ways around this.
The multiples of salary that the banks were lending to certain applicants was root cause of the current crisis. In theory I still see nothing wrong with 100% mortgages for professionals who have a fairly definite career path with a gradual rise in salary.
The problem was giving 100% mortgages to "normal" applicants with no career path or salary scale.
No matter how many 100% mortgage I have done for professionals (doctors, barristers, accountants) not one of them has defaulted or to my knowledge has been close to defaulting.
High LTV wasn't the problem, it was the class of applicant getting the 100% mortgage.
[broken link removed]Central Bank must address house bubble trouble
By Brian O’Mahony
TWO economists have concluded that liberal lending by Irish banks has contributed 13% to the rise in house prices in recent years.This is the first time the questionable role of the banks in Irish house price inflation has been quantified.
Of particular interest is the genesis of this report however.
It is the work of two Central Bank economists, but in an ingenious touch of distancing the bank from the findings, the authors said it did not necessarily reflect the bank’s view.
This smacks of duplicity. For ages now the Central Bank has been warning that we are in danger of puncturing the thin filament of what will be a very serious house price bubble.
They have formally issued that warning. What they have refused or failed to do is point the finger at the lenders - the banks who so far have shown a reckless disregard for the market and the damage ordinary investors will suffer if the market does go awry.
Of course 'professionals' operate in an economic world untouched by the vagaries of "normal" recessions, where career paths stretch into the distance like the yellow brick road.
Good post; I agree.I don't know the legalities, but to the me the income multiple would be a better and more appropriate metric than simply LTV.
People can still get deposits from parents, credit unions, Friends, car loans etc.,
Even if the limit was set at 6 or 7 times one salary, people could not spend on houses what the bank would not give.
If this was the case it is hard to see how the average house would get to 10x the average salary.
But this regulation needs to be in place from the start or implemented very slowly or else recent purchasers would suffer with negative equity as soon as the regulation was brought in.
Even if the limit was set at 6 or 7 times one salary, people could not spend on houses what the bank would not give.
If this was the case it is hard to see how the average house would get to 10x the average salary.
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