Will banking industry reforms results in higher loan and mortgage costs?
In the current financial climate most people are already struggling to keep on top of their borrowing costs, and most can ill afford to cope with even higher borrowing and mortgage costs.
However, it seems that this is just what could end up happening, largely because of sweeping reforms that are planned within the banking industry by the Financial Services Authority. For many this could mean stretching their finances even further, but the FSA has said that the reforms are a necessary part of ensuring that these problems do not arise again.
The reforms that are planned by the FSA are to ensure that history does not repeat itself in terms of the ongoing financial crisis that has hit the UK and other major economies around the world. Lord Turner, the chairman of the Financial Services Authority, has promised to make sweeping reforms to safeguard the future of the economy from further disruption. Turner has already made it clear that he thinks that tougher regulation in the first place would have helped to avoid the problems within the banking industry that have been seen over the past year and a half.
However, industry officials have said that whilst Lord Turner’s intentions were understandable the sweeping reforms would undoubtedly cut the profits of banks, and in order to try and recoup the lost money banks would end up having to increase their charges and fees for loan and mortgage customers, thus the cost of the reforms would ultimately be passed on to the consumer. With billions of pounds worth of taxpayers’ money already having been used to bail out the banks, it seems that consumers are getting a really raw deal.
An official from the Council of Mortgage Lenders has already stated: ‘The rising cost of regulation will have an impact on consumers.’
It is also thought that in order to comply with regulations to stop people from overstretching themselves financially there may be further restrictions placed on the availability of mortgages. Part of Lord Turner’s plan could be to increase the minimum deposit required from borrower to 15 percent, which could result in more people being driven out of the mortgage and housing market.
When talking about reforms to the banking industry Lord Turner stated: ‘We need to make the banking industry a shock absorber in the economy not a shock amplifier.’
He was also asked whether stricter regulation could have stopped this crisis from occurring in the first place, to which he replied: ‘Yes. Had we had these processes in place ten years ago they would have produced a very different financial system today.’
George Obsorne, the Shadow Chancellor, said: ‘Lord Turner’s analysis echoes what the Conservative Party has been saying for the last 18 months: that this is not, as Gordon Brown claims, the recession that came from America – but it has its roots in imbalances and the growth of debt [in the British economy].’
Vince Cable from the Liberal Democrats said: ‘Banks should be safe places for people’s savings, not huge roulette wheels. Banks that act like gamblers in a casino, taking massive risks for big returns, cannot be allowed to come begging to the taxpayer when things go wrong in the future.’
