Bank to get powers to cut credit

There are disagreements about what powers the committee should have

The Bank of England is to be given new powers to control the amount of money that banks and building societies lend, the BBC has learnt.

A new committee will take members from the Bank of England as well as the Financial Services Authority (FSA).

It will try to stifle lending booms, of the kind seen between 2005 and 2007, as well as stimulating lending during recessions such as the current one.

The plans are due to be published by the Treasury on Wednesday.

But the new committee will not be set up quickly because there are disagreements between the Treasury, Bank of England and FSA about what tools it should be given, according to the BBC's business editor, Robert Peston.

The plan represents an important cultural and economic break from the policies and ideology of the past 20 years Robert Peston, BBC business editor Read Robert Peston's blog

One possibility is that banks should have limits on the amount they are allowed to lend relative to the amount of capital they hold.

The committee would then be able to raise or lower those limits depending on the state of the economy.

Alternatively, the committee could be given powers to set limits on the amounts that banks are allowed to lend to housebuyers, relative to their income.

Another possibility is that the committee could be given powers to impose targeted taxes on loans that could be used to limit lending in a boom.

Our correspondent says the plan represents an important cultural and economic break from the policies and ideology of the past 20 years, during which there was a political consensus that there should be no attempt to ration lending and that a free market in loans was essential to British prosperity.