property prices and a fall in spending across the economy, can, through a rise in defaults, damage banks and contribute to a tightening in credit conditions, creating a further drag on economic activity. the distribution of indebtedness is also likely to matter. given their sensitivity to a change in economic conditions, a long tail of highly indebted households could represent a vulnerability for both the banks and the economy. the data suggest that the size of this tail is increasing. gross lending has increased and the share of new mortgages for house purchase at a loanto - income ratio above 4. 5, at 8 %, is back around its pre - crisis level. these households tend to have borrowed for long maturities and to carry higher levels of unsecured debts. these factors could, therefore, explain why, across countries, recessions associated with housing busts have tended to be over twice as severe as those without. and why, for countries where there have been larger and faster increases in household debt levels, recessions have tended to be deeper still. the financial policy committee has already acted in response to the growing momentum in the housing market. as well as the general strengthening of bank capital, the fpc, in conjunction with other regulators and the treasury, withdrew both the cheap funding and favourable capital treatment of mortgage lending introduced after the crisis to help support the housing market. and, we have asked the fca that when lenders test whether prospective borrowers can afford, through time, the mortgages they seek they should bear in mind future financial policy committee recommendation on the appropriate interest rate stress test to use in assessments of affordability. whether and how to act further if, following the pause of the last couple of months, momentum continues to build will be the most challenging judgment the fpc will have to take in the coming months. the fpc ’ s response will depend on the nature of the risks to stability identified. the fpc ’ s powers of direction in relation to the capital banks and building societies bear most directly on mortgage lenders ’ ability to weather a downturn and housing bust once it has emerged. others, like the fpc ’ s powers to make comply or explain recommendations to the pra and fca could bear more directly on the crucial underwriting standards and affordability constraints like debt service to income, loan to income and loan to value. the fpc has said that it would take a proportionate and graduated response to evolving housing market risks. experience suggests

anna sweeney : solvency ii review - protecting policyholders while improving the regime speech by ms anna sweeney, executive director for insurance supervision of the bank of england, at the jp morgan european insurance conference, 15 june 2021. * * * introduction in the channel four show grand designs, people set themselves the task of self - building a new house, starting with an empty field or sometimes an existing property, and finishing a number of years later with a beautiful new place to live. along the way there are invariably dilemmas around which building materials to use, how best to deliver on the architect ’ s plans, and whether the end result will be as originally envisaged. fortunately with the solvency ii review we are not starting with an empty field. the task at hand is more like the considered modernisation of a listed building. we already have a well - embedded regime, where there is a shared understanding of the benefits as well as the limitations. our house has ‘ good bones ’ ; we are committed to upholding the principles which underpin the current regime. there are many important features that we want to preserve. but like any good self - builder, we ’ ve been walking around with a notebook, making lists and early sketches for the areas that might most benefit from upgrading ; extending ; reinforcing ; or streamlining. some areas may only need thoughtful tweaks. others may need structural work. it will be important to have sound estimates of costs and timings before the plans are finalised and the heavy machinery starts to arrive on site. we have some clear design parameters for the build. the government has set out three objectives to ensure the review is tailored in the right way1 : to spur a vibrant, innovative, and internationally competitive insurance sector ; to protect policyholders and ensure the safety and soundness of firms ; and to support insurance firms to provide long - term capital to support growth, including investment in infrastructure, venture capital and growth equity, and other long - term productive assets, as well as investment consistent with the government ’ s climate change objectives. i want to talk for a few minutes about the second objective, policyholder protection and safety and soundness, and why we think of it as the foundation stone on which any measures to reach the other two objectives must rest. policyholder protection is ultimately the business we are all in. insurers protect policyholders by reducing risk and uncertainty from their lives and businesses. doing so provides certainty and security, allowing companies to