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Bank of England will go after firms looking to mask risks

Staff Writer |
The Bank of England has issued a warning to major lenders not to repeat like they did before the 2007 credit crisis when they deployed complex strategies to mask the financial risks they were running.

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Sam Woods, one of the Bank’s deputy governors, also said some lenders were starting to take more risks and set out a number of products facing scrutiny from regulators, including an increase in mortgage terms from 25 to 35 years.

Referencing the famous phrase of William McChesney Martin, a chairman of the U.S. Federal Reserve in the 1950s, Woods said the Bank is on alert for a “return to the punchbowl”.

“Across the wider market, we are observing – not from all firms, but definitely from a few– a shift in credit risk appetite as lenders compete with each other to find ways of widening the pool of available borrowers, increasing the size of loans available to them, or reducing the credit premium charged for inherently more risky loans,” he said.

Woods’s remarks were initially prepared for delivery in May to the Building Societies Association but delayed because of the purdah period imposed once the general election was called. They were published, in an updated form, on Monday.

In a warning to banks and building societies Woods said the Bank had already found behaviour from lenders that “might meet the letter of the regulation” but is “designed to circumvent the spirit”.

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