This is important because residential mortgage lending terms tightened significantly during the crisis, and have not eased subsequently.12 Indeed, over 50 percent of all new loans – and 70 percent of new prime conforming loans – go to borrowers with FICO scores of 760 or above, compared with about 30 percent before the crisis. Borrowers with credit scores of 720 or less now make up less than 30 percent of new originations, although they represent 52 percent of the population with credit scores. Steps should be taken to improve households’ access to credit. Currently, lenders are discouraged from making new prime conforming loans due to excessively stringent put-back rules on these mortgages. Such rules give Fannie Mae and Freddie Mac broad scope to force the originator to repurchase at par loans that go delinquent if there are any errors in the mortgage loan paperwork – even if the error has no direct link to the delinquency. It is essential that lenders are accountable for the representations they make and are appropriately penalized for any misrepresentations. However, doing this via a blanket  10  “The National and Regional Economic Outlook,” October 24, 2011, and “Securing the Recovery” November 17, 2011. 11  Board of Governors of the Federal Reserve System. 2012. White Paper, “The U.S. Housing Market: Current Conditions and Policy Considerations,” January 4. 12  According to the Senior Loan Officer Opinion Survey.
Domestically, financial liberalisation and deregulation have relaxed investment restrictions. More flexible exchange rate policies, liberalisation of capital accounts, the opening of domestic stock markets to foreign investors as well as “investor-friendly” policies help to attract foreign investors. Global factors have also played a role, with the abundant global liquidity environment as well as the decrease in home bias. By way of example, non-residents currently hold 46% of French market capitalisation and slightly more than 50% of French government bonds. BIS Review 140/2007  1  A third driver is the emergence of global financial players, such as large banks, hedge funds, private equity funds and more recently sovereign wealth funds. They all share common characteristics: -  They play an important role in fostering market efficiency, and provide liquidity to capital markets;  -  They use sophisticated investment strategies;  -  They implement advanced risk management practices, and help to spread them across markets and countries. However, because of their sheer size and potential impact on market equilibria, they raise some concerns of transparency as well as questions about their role in fostering, or not, financial stability. Those issues warrant being debated. What are the consequences of the financial globalisation currently underway for global capital markets? They are well known, so I will just highlight two of them. First, globalisation increases the efficiency of financial markets. Thanks to financial globalisation and technological progress, informational efficiency of capital markets has increased over the past few decades.