As regards complex structured products, we insist on imposing certain prohibitions, and both Anatoly Aksakov and Nikolay Zhuravlev have already said this. We have been discussing at the Federation Council that we need adequate laws in this area. The second problem is high hidden fees in consumer lending. In the conditions of low interest rates, banks, regrettably, also get involved in dubious practices striving to increase their interest income. Some banks ‘conceal’ the actual cost of a loan in insurance premiums and fees, while their amount may reach up to 50% of the loan cost. Often, people are unable to understand how much they would have to actually pay for a loan. Therefore, we are proposing a new approach to calculating the effective interest rate and hoping to be supported by legislative authorities on this issue as well. The new approach implies that the calculation will cover all additional services and insurance options approved by a borrower. As a result, a client will receive exhaustive information. Furthermore, as loans with a high effective interest rate involve higher capital requirements, banks will be less interested in granting so expensive loans. 5/7  BIS central bankers' speeches  The third topic is floating interest rates on retail loans. Banks want to be capable to efficiently manage their interest rate risk. Indeed, we appreciate that banks are careful in controlling their interest rate risk. This risk should never be underestimated. Nevertheless, we believe it inappropriate to fully transfer these risks to retail borrowers, especially on long-term loans.
If housing prices were to fall, for instance, housing declines in value while mortgages remain constant. Consequently, the loan-to-value ratio of the mortgage increases. As mortgages with an excessive loan-to-value ratio cannot be used as collateral, falling housing prices can thus mean that some of the collateral must be removed or replaced. As the banks have often allocated an extra buffer of collateral, there is scope to remove mortgages that no longer meet the requirements, without having to replace them with other collateral. However, if the banks do not replace the collateral that has been removed, it may limit their possibilities to issue further bonds based on this collateral. The reason for this is that both investors and credit rating agencies often require a buffer of additional collateral. The banks can top up the collateral by earmarking other types of collateral, such as government bonds, by selling parts of their liquidity buffers or by issuing short-term securities and then earmarking the liquid funds they receive. However, the opportunity to top up the collateral in this way presupposes that the financial markets are functioning normally and that investors have confidence in the Swedish banks. Heavily falling housing prices can disrupt market functioning Covered bonds are subject to special legislation that ensures that these securities are very safe. Although this regulation has worked well so far, one cannot rule out the possibility that heavily falling housing prices could disrupt the functioning of the market and thus affect the banks.