FSA send out warning to banks

The Financial Services Authority has sent out a stark message to banks, warning them that the cost of selling off their loans will never be as low as it used to be, and adding that the cost of borrowing is likely to increase on a permanent basis with more lenders having to keep loans on their own books.

Hector Sants, the Chief Executive of the FSA, stated: “Banks themselves need to give consideration to how their business models will need to adapt to the changed market circumstances they have seen. Secondly, we will be looking for firms to treat their customers fairly in these arguably more difficult times in prospect.”

Following his comments to the BBC one BBC official stated that the message indicated that there “will be a pretty steep reduction in the amount of credit available and the cost of it”.

He added that “His comments represent a sound ticking off for the City.”

This is another of the effects of the global credit crunch, which has already affected the money markets in a number of ways, including tighter credit conditions, a reduction in mortgage approvals, and even a reduction in the type of mortgages available, such as 100% mortgages and 125% mega-mortgages.