By a staff reporter
The International Monetary Fund (IMF) has issued a report warning of the potential for global housing bubble, calling for toughened lending rules to prevent banks from contributing to a global version of the United States housing bubble.
In its “Key Aspects of Macroprudential Policy” report, the IMF called for a larger role for “macroprudential policies” that would address broader financial systems rather than focusing on the health of individual financial institutions.
“Policymakers learned the hard way [during the global financial crisis] that systemic risks could not be addressed through the traditional mix of macroeconomic policies and microprudential measures aimed at individual financial institutions,” IMF financial counsellor and director José Viñals said.
The report argued that policies and regulations focused on the health of individual firms could generate different responses from those designed to protect the broader financial system, such as in Europe where individual firm-focused policies called for the increase of bank capital ratios in crisis periods, while macroprudential policies would express concern that such measures would cause excessive deleveraging and damage to the broader economy.
The prospect of a fresh round of housing bubbles has sparked concerns in Australia, the United Kingdom, Canada and New Zealand, among other countries, where record-low interest rates have sparked sharp growth in household debt levels.
In Australia, a report published on Monday by Citigroup warned the property market's continued growth could handcuff the Reserve Bank of Australia's ability to address unemployment concerns, or a renewed strength in the local dollar.
“The scope to cut would be compromised if house prices continue to accelerate and precipitate a surge in leverage,” Citigroup economists Paul Brennan and John Williamson warned.
“We doubt that APRA and the RBA are ready to follow the Reserve Bank of New Zealand in announcing controls on LBRs or housing loans, but APRA has indicated a desire to apply tougher prudential standards on how banks assess lending risks.”