Property-related debt – for residential and commercial real estate purposes – makes up around 60% of private nonfinancial sector debt in the UK. And, of course, the counterpart of that is that domestic property-related loans make up around 55% of the domestic loans of the UK banking sector; 76% when financial sector loans are excluded. 1 Moreover, the evidence is pretty clear from history, and across  1  Non-bank lenders are also an important source of finance, providing 15% of all property-related loans according to Bank staff estimates. BIS central bankers’ speeches  1  countries, that there is a strong and special link between booms in property-related debt and financial crises in a way that is much less true for other assets like equities. 2 I want also to reflect a little today on the health of banks in the UK. Since last summer, and particularly since the turn of the year, investors have written down the value of banks in advanced economies. Does this signal concerns about banks’ resilience and robustness? Or about their returns? The Financial Policy Committee The FPC is charged with identifying risks and taking action to protect the resilience of the UK financial system. In essence this means two things. First, we need to be confident that the regulatory framework in the UK addresses the risks not just of individual financial firms, important though that is, but also the risks inherent in the financial system as a whole.
Whether we are talking about your cash or your securities, if you can call them on demand and they are being used to finance your broker’s business, that used to be called ..... banking. I suggest the following in this area:   Only banks should be able to use client moneys and unencumbered assets to finance their own business to a material extent; and that should be a clear principal relationship. Legal form should come into line with economic substance.   For non-banks, any client moneys and unencumbered assets should be segregated and should not be used to finance the business to a material extent. It should, however, remain permissible for non-banks to lend to such clients on a collateralised basis to finance their holdings of securities (“margin lending”). This is an area where regimes vary enormously around the world or are non-existent. For example, the US domestic regime is stricter on this than Europe. We need a global discussion. Securities lending, repo and collateralised-financing markets So far I have discussed funds or vehicles or firms that are in economic substance shadow banks. We also need to think about the markets that firms and vehicles can use to develop a de facto banking business. Perhaps the key such markets are securities lending and repo – or, more generally, collateralised borrowing. Before proceeding I must stress that these markets are vital to efficient capital markets. The crucial economic function of market-making entails intermediaries going short, and so needing to cover their position by borrowing securities.