

New Banking Act comes into effect Banking minister Lord Myners has said banks were "foolish" to offer 100% mortgages, after Gordon Brown called for "prudent and careful" lending. Lord Myners said costly lessons had been learned worldwide "about reckless, feckless, witless lending". The Financial Services Authority is to consider controls on loans over 100%. The Tories said Mr Brown's regulatory system had allowed 125% deals. The Lib Dems said the PM was "very belated" in calling for an end to 100% mortgages. Lord Myners said it was "generally recognised in the banking community" that 100% mortgages had been "a foolish thing to do". "We need to create systems through enhanced governance, more accountability and appropriate regulatory intervention to ensure that excesses do not occur," he told BBC One's Politics Show. The minister said there needed to be a return to "safe, secure, sober lending activities". "We have learned some very, very expensive lessons globally about reckless, feckless, witless lending by a small number of banks." We do want to see the reinvention of the traditional savings and mortgage bank in Britain

Prime Minister Gordon Brown Writing in the Observer, Mr Brown said the Financial Services Authority would be considering controls on mortgages of more than 100% of a home's value, and so-called high multiple mortgages offering loans of up to six times an applicant's salary. More caution in the mortgage market, he said, would reduce chances of a future property crash. The prime minister added: "We do want to see the reinvention of the traditional savings and mortgage bank in Britain, for loans to be made on prudent and careful terms, not just to people with large deposits, but to those on middle and modest incomes who wish to buy their home but who have not been able to save a huge deposit." Shadow treasury chief secretary Philip Hammond accused the prime minister of "trying to shut the stable door on irresponsible lending long after the horse has bolted". "It was his regulatory system that failed to spot the boom and allowed 125% mortgages from Northern Rock and HBOS," he said. Although he has extraordinary and perhaps unprecedented power over the banks, the prime minister's programme of change for the banking system is strikingly conservative

Robert Peston, BBC business editor

See Robert Peston's blog Liberal Democrat treasury spokesman Vince Cable said the call for an end to 100% home loans was "a very belated recognition of the new reality", and questioned whether there would be regulation on the issue. He added: "Only last week the Liberal Democrats set out a proposal for Safestart mortgages as the new models for the industry, with 85% mortgages and protection against negative equity." "I'm glad to see Gordon Brown is catching up with us." 'Servant' Mr Brown indicated that discussions were continuing with the banks on the possibility of the government underwriting their so-called "toxic" assets to encourage them to resume lending. "In order to get lending going, we must continue to develop agreements that remove the uncertainty arising from banks being unsure of their losses in return for improved lending conditions for families and businesses," he wrote. "We want to ensure that the new banking system that emerges over the coming years meets all these requirements - and becomes the servant of our economy and not the master." But he ruled out legislation to create a "rigid divide" between retail High Street banks, which offer standard deposit accounts and loans, and investment banks trading globally in complex financial instruments. 'Humbug' Alex Brummer, City editor of the Daily Mail, told the BBC it was "humbug" for the prime minister to ask people now to forget those years of deregulation when bankers could "do what they wished". "He did nothing to put the brakes on - quite the opposite. He claimed we were being very prudent but, of course, we weren't being very prudent and we have now had the consequences of that," he said. Mr Brummer argued it was "absolute madness" for Mr Brown to pretend Britain could "turn the clock back". "Banking has changed, the world has changed - finance moves much faster now and I think it is impossible now to go back to that era," he added. During his time as chancellor, the prime minister was openly critical of other European banking systems for their strict regulation and inflexibility. Banking Act Britain, he said, was strong because of its light-touch regulatory environment, which encouraged investment and created jobs and wealth. But BBC business correspondent Joe Lynam said the credit crunch and the ensuing financial crisis had changed Mr Brown's attitude to banking. The UK's new Banking Act came into force on Saturday, giving greater powers of intervention to the Bank of England. The act enables the Bank to intervene more quickly to help troubled banks and protect investors. It will be able to give hidden support to stricken banks, with the aim of maintaining financial stability. However, critics of the act say it throws a cloak of secrecy around the banking world, which could be detrimental for consumers.



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