BERN, SWITZERLAND – The current very low interest rates in Switzerland run the risk of overheating the mortgage market and Wednesday the Swiss Federal Council underscored that it considers urgent the need for measures to reinforce macroprudential management.
In particular, the government wants to ensure that the central bank and supervisory authorities have rapid access to lending data from the banks to avoid a Fannie Mae style meltdown from risky loans, with the broader impact that would have on the economy.
The Swiss National Bank and Finma, the federal supervisory body for financial institutions, are already working with the Federal Finance Department, and the working group will very soon begin to involve Swiss banks, the cabinet said in a statement 7 September.
The working group’s work is an extension of steps taken 17 August, when the government announced that banks will be required to get tougher about mortgages starting in January 2012.
Borrowers will need higher down payments to buy homes starting next year.
The group is reviewing the way in which the central bank can have rapid access to bank data when it’s not available to Finma. Current legislation may be too restrictive, the cabinet argues, and if this is found to be the case it will draw up a new legal framework by the end of the year and submit it to parliament.
“Macroprudential” is a relatively recent buzz word in the financial word, says the Bank for International Settlements, reflecting greater concern since 2008 over the impact of high risk lending on the economy as a whole. One of its earliest uses was in 1979, in a background paper prepared for a BIS working committee by the Bank of England:
“Prudential measures are primarily concerned with sound banking practice and the protection of depositors at the level of the individual bank. Much work has been done in this area – which could be described as the ‘micro-prudential’ aspect of banking supervision. […] However, this micro-prudential aspect may need to be matched by prudential considerations with a wider perspective. This ‘macro-prudential’ approach considers problems that bear upon the market as a whole as distinct from an individual bank, and which may not be obvious at the micro-prudential level.”
Background feature: “Swiss mortgage rates remain low, but market increasingly scrutinized”, 17 June 2011, GenevaLunch