Stop me before I lend again

Considering the mayhem caused by the credit crisis and the massive costs visited upon taxpayers, the world's banks are doing an amazing job of fending off significant changes in regulation. The UK, one of the worst-hit jurisdictions, has not done much beyond imposing a one-time tax on bankers' bonuses, which has hardly caused a hiccup in the payments, let alone changed the banks' behaviour. President Obama has proposed a drastic back-to-the-future re-regulation of US banks, but the so-called Volcker Plan is already being dismissed as "dead in the water" by many pundits. Nobody else even seems to be trying very hard.

How about this, though? Canada has today announced a tightening in rules for residential mortgage financing. You can read the details on the Finance Canada website here. There's nothing too drastic about the specific rules, although the requirement for all new borrowers to show that they could afford a 5-year fixed rate mortgage, even if they are actually taking out a short term floater, would certainly have made a difference in the UK and US if it had been in place before the crunch hit. But what's really interesting about these rules is that the banks themselves lobbied the Government to impose them! Yes, really. As a result of the low interest rates put in place to combat the credit crisis, Canadian house prices have been on a roll, rising about 18% in the past year. None of the major banks wanted to be the first to quit the arena, but as a group they were smart enough to go the government and suggest a gentle tightening of the rules.

Not like the UK, is it? Here, banks are racking up massively higher profits on the back of cheap funding from taxpayers, while continuing to squeeze both mortgage and small business lending. They're issuing apocalyptic warnings about the dire consequences of any meddling in their affairs while quietly making plans to move more of their operations to "friendlier" jurisdictions. Now, Moody's is warning of a second credit crunch, and a renewed fall in house prices, when Government funding of the banks starts to be withdrawn at the beginning of 2011. If taxpayers and borrowers were starting to wonder what they had got in return for bailing the banks out, you couldn't really blame them, could you?