The tools available to limit the exposure of banks to borrower credit risk are well known by this audience but I’ll list a few anyway: loan-to-value thresholds, debt-to-income thresholds, caps on the monthly repayment-to-income ratio. As regards the banks resilience, the current financial crisis revealed that fragmented microprudential supervision was insufficient to ensure a stable banking sector.
Since then some substantial changes have been made and are currently under way in financial regulation. These include a strengthening of micro-prudential oversight and, perhaps most importantly, the introduction of a complementary macro-prudential perspective.