One reason for Iceland’s limited success in keeping inflation in check has been precisely that the impact of the Central Bank’s policy rate hikes has not been transmitted in full to the mortgage loan market. In particular this is because one of the players there, the HFF, enjoys Treasury guarantees on its borrowing, enabling it to meet its funding requirement by issuing bonds at very long maturities with lower yields than on shorter issues, so that it can avoid raising interest rates on its new lending, which under normal circumstances would have been warranted and called for by the Central Bank’s monetary stance. Since autumn 2005, market yields on indexed bonds have risen in the range ½ to 2 percentage points, depending upon the issues involved. At the same time, HFF interest rates have gone up by half a percentage point. So it cannot be said that Iceland faces the same conundrum as the US about why long-term interest rates have not risen in the wake of policy hikes. House prices began to increase significantly again last spring, in the teeth of general expectations, and have been the main driver of the CPI in recent months. It is not unlikely that the latest wave of price rises in the housing market is at least partly due to decisions by  2  BIS Review 111/2007  the government and HFF last winter to raise the loan-to-value ratio and mortgage ceilings and to lower interest rates on new lending.
Christian Noyer: Publication of Bank of France’s Financial Stability Review “The future of financial regulation” Remarks by Mr Christian Noyer, Governor of the Bank of France, at the publication of Bank of France’s Financial Stability Review “The future of financial regulation”, London, 4 September 2009. *  *  *  It's a pleasure to welcome you here, in London, on the eve of a very important G20 Ministerial meeting and to introduce the latest issue of our Financial Stability Review. It is also a privilege to have such a distinguished panel for this introduction and I want to express my gratitude to all. The Review is about the Future of Financial Regulation. Our hope was to help and contribute to the international discussions and the publication of this Review could not be timelier. The financial crisis has taught us some very hard lessons. While there are many causes to the crisis, including, maybe, macro economic policies, it is also clear that it forces us to reconsider the way we regulate and supervise the financial system. That is what we are doing, and this will take a significant part in tomorrow's discussions between G20 Ministers and Central Bank Governors. At stake is the scope of financial regulation, its nature, and its objectives. The scope of financial regulation We entered this crisis with many unregulated entities playing a major role in the financial system.