I can’t believe I’ve reached a point in my life where I’ll not only read a document like this, but actually share the fact that I have in public. But there you go.
From the official organ of the Financial Services Authority:
In a lecture at the CASS Business School in London, entitled, “What do banks do, what should they do and what public policies are needed to ensure best results for the real economy?” Adair Turner focused on the role that credit can play in driving asset price cycles, which in turn can drive credit supply in a self-reinforcing and destabilising process.
In the case of commercial real estate, for example, he comments that “increased credit extended to commercial real estate developers can drive up the price of buildings whose supply is inelastic, or of land whose supply is wholly fixed. Increased asset prices in turn can drive expectations of further price increases which drive demand for credit; but they also improve bank profits, bank capital bases, and lending officer confidence, generating favourable assessments of credit risk and an increased supply of credit to meet the extra demand”.
However, Adair Turner warned that using a ‘one size fits all’ policy approach to curbing asset price bubbles in commercial or residential real estate could have the unintended consequence of restricting credit to other real estate sectors of greater economic benefit.
He commented: “There is, therefore, a danger that at some points in the credit/asset cycle, appropriate actions to offset the economic and financial stability dangers of exuberant lending will tend to crowd out lending which funds productive investments”.
There’s plenty more where that came from.
(Source: FSA)
