Finance minister Bill English says the Government is "considering formalising" proposals to restrict bank lending and other "tools" to control credit growth - which the Reserve Bank will be taking to the public for consultation next month.
In a lunchtime speech to the Auckland Chamber of Commerce today English made a point of highlighting the Reserve Bank's upcoming public consultation on new tools for financial stability - including restricting the loan value ratio of bank lending in the housing sector (LVRs).
The proposals would be used to control credit growth and try avoid damaging housing market bubbles, English said.
They might also include requiring lenders to hold additional capital on their balance sheet as a buffer during an economy-wide credit boom, additional capital against loans in specific sectors if risks emerge in those sectors and adjusting their funding ratios to use more stable sources of funding to avoid the impact of short-term funding shortages.
English said he did not want to pre-judge the process and did not see the proposals solving all the problems of excessive credit growth.
"Decisions about loan-to-value ratios and bank funding and capital requirements should also be made by an independent Reserve Bank."
But he said the Government was considering formalising the use of these tools "to avoid a strong upswing in asset values and any unsustainable growth in borrowing well in excess of economic growth".
"Under these proposals, the Reserve Bank will have a greater ability to influence the amount of lending done by banks and other financial institutions."
The Government's interest in slowing this sort of cycle was underlined by the experiences that other countries continue to face as a result of the global financial crisis, he said.
"The social and economic costs of credit excesses are very high and we should take practical measures to avoid them."By Liam Dann @LiamDann Email Liam