in that country ( and others ) for almost a century to enable borrowers to obtain finance for housing without actually having to save the 20 per cent that would otherwise have been insisted upon by the lenders and their regulators. the central bank ’ s recent consultation paper pointedly raises the question of whether adequately insured mortgages should be allowed to exceed the general 80 per cent rule which has been proposed – this might cover up to 90 per cent, for example. while we point out that too liberal a use of such insurance can have the effect of neutralising the effectiveness of a ceiling on loan - to - value ratios as a mechanism for preventing house price bubbles ( and while it typically provides no protection to the borrower ), this would be less a concern if limited, for example, to relatively small loans and / or first time buyers. of course, mortgage insurance would achieve relatively little if it merely shuffled systemic risk around within the domestic economy : external insurance from solid insurers would be needed. i look forward to the responses on this matter, including on the practical issues of implementation that might be entailed. meanwhile, by limiting the quantum of mortgages that can be made at high loan - to - income multiples, it could be argued that we at the central bank are moving into the nudge territory at the macro level. it doesn ’ t mean that no borrower will become over - indebted. for one thing we for example, excessive penalties for unauthorised overdrafts have been the subject of litigation in the uk. e. g. robert j. shiller, finance and the good society ( princeton university press, 2012 ). in housing, a more prominent role for such bodies as housing associations, and a more effective rental market can also help reduce the risk of over - indebtedness. bis central bankers ’ speeches do envisage continuing to allow high ltis – just not too many of them. for another, current income is not a perfect predictor of future income. so our proposed macro - prudential measures will not substitute for good loan appraisal decisions by banks ( who are not, according to our code of conduct, supposed to make loans except they be affordable and suitable for the borrower ), and good financial decisions by the borrower. but limiting the volume of high ltv and lti loans for macroeconomic and financial stability reasons should have a beneficial consumer protection side - effect in reducing the re - emergence

commitment device ( think of ulysses and the sirens, alexander or cortez burning their boats, or medieval rulers exchanging hostages as an earnest of peace ), the emu should have functioned very well indeed. debt, competitiveness and balance of payments problems were always going to be harder to fix if they emerged in a euro area country. perhaps that was not fully and constantly brought home to decision - makers. instead, they seem to have assumed that all problems of macroeconomic imbalance would automatically be self - correcting in the new environment. for example, by removing the possibility of devaluation, membership of the euro ensures that any country which allows its competitiveness to get out of line will ultimately suffer a costly period of adjustment likely associated with unemployment. it was always going to be much more difficult and more painful to readjust aggregate competitiveness. did that stop countries from losing competitiveness : no! [ chart 6 ]. indeed, wide discrepancies in competitiveness quickly opened - up and became progressively worse until 2007. where one might have expected the financial markets to enforce discipline, they did not always do so. in particular, a market understanding that there really was going to be no bailing - out from the rest of the union of national governments that got into trouble, no transfer union, should have implied that market investors would penalise countries heavily for accumulating debt at an excessive rate. some market participants did recognise the existence of differential credit risks. let me return to the chart which i showed on ratings and yields [ chart 5 ]. the much maligned credit rating agencies did distinguish between euro area sovereigns – albeit only in a relatively narrow range that extended down to a ( for greece ). but the range of market yields on government debt did not reflect even this range of credit assessments : in effect real money must have assumed that governments would be bailed out, despite the “ no transfer union ” dogma. accordingly some governments were able to spend and borrow without seeing the cost of funds move up against them ( though admittedly, bis central bankers ’ speeches the accumulation of excessive debt before the crisis was not as large as is sometimes carelessly asserted. ) ( note that the markets were wrong : they did eventually lose significantly on greek debt ). the rapid expansion in cross - border borrowing and lending in the euro area unrelated to governments was a phenomenon driven as much by global financial liberalisation as by the existence of the euro. it led to a huge accumulation of banking