The possible effects of the transition at the end of interest-only periods were discussed in the recent Financial Stability Review.4 I will come to that issue shortly, but first I want to review the regulatory responses to the strong growth of interestonly lending in recent years.
One of the main lessons from the financial crisis was that the rules governing the banking system were rather inadequate. We saw excessive risk-taking, insufficient loss absorbing capacity and banks that were “too big to fail” – to name just some of the problems that led to the crisis.