View from City Road: Hand-wringing won't be enough next time

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The Independent Online
There is an awful predictability about Bank of England homilies on banking, and the speech yesterday by an associate director, Pen Kent, is no exception. Use the rewind button and reverse back to 1983 or 1984. Now substitute the phrase 'lending to developing countries' for every appearance of 'lending to the property sector', and many of the old analyses and solutions crop up.

Better information and statistics? Why of course. Bankers should have an enhanced expertise in property (or whatever other area bankers have chosen to lose our money in)? Who could object? Securitisation, whereby loans are bundled up and made into bonds so that they can be sold to other lenders? A sound wheeze.

The implicit assumption is that the only reason why bankers have lost money hand over fist is because of local imperfections in the market. In fact, bankers are just like other people in other capital markets. They are subject to all the enthusiasms and myopia of the thundering herd, happy to lend so long as their fellows are also happy to lend and they can fool themselves into believing that some other sucker will pick up the losses.

Unfortunately for the Bank of England, the consequence of accepting that bubbles occur in banking as well as currency and stock markets is discomfiting. It means that the authorities cannot, as Mr Kent implied, merely confine their attentions to a 'stable macroeconomic environment'. Some markets - and property is certainly one - are so important that they can widely disrupt the healthy working of the economy. Next time, the Bank of England's supervisors need to do more than wring their hands.