FSA to force banks to impose checks but shouldn’t the banks have done this anyway?

It’s a bit hard to believe but today, through a City Watchdog report on mortgages, the FSA found out that banks were not checking borrowers actual income when they were applying for a home loan. In fact, half of all applications granted between 2007 and the beginning of this year had not been thoroughly checked by the lenders.

This does pose the question on why banks are taking such huge risks after the sub prime mortgage crisis effectively caused the global economy to dip. Tougher restrictions were imposed on those wishing to buy properties in order for this kind of fiasco to be averted in the future. Borrowers in the UK could not get 100% mortgages anymore and banks had stopped lending.

So for this report to highlight these figures is actually shocking and it must have given the FSA a huge realisation that the banks will just not listen. The regulator has now proposed that self certification mortgages will be scrapped and they will force the banks to make stringent checks into the income the borrowers actually make rather than claim to make. This, they found, was one of the fundamental flaws of self cert mortgages. This really doesn’t come as much of a surprise as people will do whatever they needed to do to secure their dream property. Even if it left them penniless, which is another aspect that the FSA found to be the case.

Maybe this is a great thing that the FSA have realised what is happening and will hopefully shape up the industry again. Their four month consultation which the lenders will soon commence and it is hoped that those who cannot afford to borrow don’t. It is essential for future economic growth that people only spend what they can afford to spend and the banks need to go some way in assuring this.

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Spanish banks begin to emerge from the storm of recession

It has been a torrid twelve months for the Spanish banking and financial system but it is starting to get better, according to leading Spanish equity fund managers.

The Spanish Central Bank last year created the Bank Restructuring Fund for Orderly Bank Restructuring (FROB). This fund can potentially deploy up to €99 billion, if Spain can raise that money on international markets. This coupled with the ECB announcing stress tests for the regions banks goes some way in deplaying confidence across the region.

Traditionally, a number of commercial banks have shared banking space in Spain with 45 unlisted regional saving banks locally known as cajas. These cajas have evolved into offering financial services while their legal status remained as private enterprises, this has made it difficult for them throughout the financial crisis, putting strain on the larger banks.

In spite of some individual success stories from the cajas, such as leading savings bank La Caixa, for many experts the cajas as a whole have been dragged down by two major handicaps: their lack of presence outside of their respective regions and interference in their businesses by their local regional governments. This is why the situation in spain would appear to get worse before it gets better.

The financial crisis has hit Spain’s economy, as well as the popular real estate sector hard. With some 1.2 million of unsold properties and a youth unemployment rate of 40.5%, the downturn has had an enormous impact on the property, banking and financial system. Ultimately, it has forced many of the cajas into a race against time to save themselves from bankruptcy.

At the same time, the Spanish central bank, Banco de España, and the government are unofficially forcing the weaker cajas to merge. The scale of the challenge is such that the Banco de España last month published a report outlining a plan to ensure the national financial system remains resilient, despite the negative effect of doubtful assets in the residential property sector.

It could be some time before Spain regains ground on the rest of Europe, but at least the banking sector can see light at the end of the tunnel.

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