One motivation may be to pass on wealth to children, who otherwise may not inherit until well past the most expensive child-rearing years. Other motivations can include supplementing pension income, repaying debt and making home improvements. The risks in this market though are very different to those on insurer’s other assets. It is a retail product bringing conduct risks that fall under the FCA’s responsibilities. From a prudential perspective, the main risk is long-term stagnation in UK house prices. Economically, the no-negative-equity guarantee is a written option on house prices. Where insurers have recently entered the market and/or are growing their loanbooks rapidly, the average expected maturity of these options is likely to be some decades in the future. Low loan-to-value ratios mean the short-run risks to insurers are limited. They can ride out a property market crash as long as the market subsequently recovers. But loan-to-value ratios increase over time unless house price growth keeps pace with the rate at which interest is accruing. So what you have is a sort of race to the value of the property illustrated by Chart 3. The time it takes for the value of the loan to exceed the value of the property will be governed by: the interest rate charged (higher is more risky), the loan-to-value ratio (higher is more risky), house price inflation (lower is more risky) and the age of the borrowers (younger is more risky). Underwriting standards do appear to have weakened a little over recent years.
First, the experience of the Single Supervisory Mechanism shows the advantages of all the players being subject to one leading authority in an integrated banking space, with clearly defined responsibilities and coordination. This single supervision allows for comparisons across a vast sample of comparable institutions, and thematic campaigns of on-site missions. Second, our active supervision features regular and comprehensive stress testing including on interest rate risks, which is also applied to less significant institutions. The  2/3  BIS - Central bankers' speeches  European Banking Authority (EBA) conducts an EU-wide banking stress test every two years, taking into account the latest macro-financial developments: in 2023, stress test scenarios are typically based on a sharp rise in short-term and long-term interest rates. Moreover, following the EBA guidelines on Interest Rate Risk of the Banking Book (IRRBB) – as part of the rigorous application of the Pillar 2 process – , published in 2018 and enhanced in 2022, European banks are required to perform regular supervisory tests to measure the impact of interest rate movements on their interest margins and economic value of equity; US regional banks such as SVB are not. III. Resolution: how to make it work Now for our last blessing. Since the global financial crisis, banks and authorities have strengthened their ability to deal with crisis events by developing a resolution framework. However, in the case of Credit Suisse, the Swiss authorities chose the option of a merger.