Finance Leaders Advise to Take Action on Possible Bubble

Leaders of firms including HSBC, UBS and Blackrock have presented a united front in warning that rules, if not fully adhered to, could push risks into the poorly regulated domain of shadow banks. 

Overvalued property assets are among the creeping dangers that can be negated by the use of macro-prudential tools whose use can cut the need for interest rates to be increased. More widespread are counter-cyclical requirements on banks and caps on customer debt relative to income. 

Financial authorities in countries including the UK, Switzerland, Israel and Hong Kong have been employing these measures more, in the hope of easing the rise in asset values, particularly in the housing market. 

Federal Reserve chairwoman, Janet Yellen, stated this month that share prices were "quite high." Emphasising that the overall financial risks were being managed, she added that there was a danger that longer-term bond yields might rise again. 

The comments issued by the leading finance chiefs' advocate the enforcement of macro-prudential policies, which help "to address emerging market inefficiencies in the financial system such as over-exuberance within asset classes such as real estate lending". 

One of the chiefs, HSBC chairman Douglas flint, said the policies could "lean against something that is making people feel good but is actually going to give them a hangover they will find difficult to cope with."

The statement also underlined that, beyond just companies that fall within the traditional regulatory field, macro-prudential policies need to be implemented across the financial system.