Under new powers being considered for the re-invigorated Bank of England (BoE), is one to give it control over the maximum loan to value percentage that a lender can offer.

This could be part of wider powers where the BoE would be able to restrict banks and building societies overstretching borrowers and creating another housing bubble. This would enable the BoE to nip another ‘Northern Rock 125% loan to value’ lending fiasco in the bud.

According to a Telegraph report, the BoE would have the ability to restrict not only individual lending institutions but also the industry as a whole. In the past the only tool the BoE had at its disposal was the setting of interest rates. It is hoped that these new powers would enable a much more finely tuned response to the prevailing economic climate.

The Financial Services Authority, which the Tories had pledged to scrap, has been given a reprieve. But it will be emasculated and will only ensure banks follow BoE rules.

The matters of a banking tax and cutting big banks up into smaller units are still firmly on the agenda. The proposal by the BoE Governor, Mervyn King, for a ‘bomb-proof’ bank account is also still being considered. The clients’ money in these accounts would be protected if the bank went bankrupt

The Chancellor, George Osborne, is expected to outline these proposals during his first Mansion House speech tonight.

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