FSA boss: Easy credit 'good for no one'

Wednesday, 27 February 2008 12:00

Banks will need new, simpler lending models in future, as current risk-models are under strain after the subprime crisis.

Hector Sants, head of the UK regulator the Financial Services Authority (FSA), said today lenders need to "adapt to the changed financial circumstances and changed market circumstances".

He told BBC Radio 4's Today programme: "I don't think markets are ever going to return to the way they were. The idea that at some point they will go back to normal is I think a misnomer.

"In the old days banks used to keep the risk on their own balance sheet. Where they entered into a transaction with the consumer they kept the risk of that transaction for the life of the transaction, for the life of the mortgage."

However, he explained in recent years banks have been looking to pass that risk on to other parties.

"This in theory allowed them to write much more business because they were dispersing that business more widely around the financial sector," Mr Sants said.

"Going forwards, that is going to be more difficult."

He went on to say obtaining loans and credit is set to become harder and he called on the lenders to treat those struggling with debts fairly.

"We would all recognise that easy credit is not necessarily good for either consumers or the economy in the long term," the FSA chief said.

"If we do see, as I have mentioned before and generally forecasted, a deterioration in the real economy, then consumers will find paying their financial obligations more difficult than they did in the past, so we will be looking at firms to treat their customers fairly in these arguably more difficult times and prospects."

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