Regulators need new powers to control lending practices in targeted financial sectors and products to allow them to prick dangerous asset bubbles before they build up, according to the UK's top financial regulator.

Calling for a "radical reassessment" of global banking rules, Lord Turner, chairman of the Financial Services Authority, argued in a speech that politicians and regulators had to rethink the view that more lending and bigger markets are always better. They also needed to consider whether to impose transaction taxes and higher capital charges on banks to curb risky trading and financial activity that does not stimulate growth in the real economy.
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Instead, governments could raise capital requirements for loans to overheated sectors, such as commercial real estate, or ban particular products, such as high-loan-to-value mortgages. Regulators may want to consider limits on borrowing by hedge funds to curb speculation.

"We need a new philosophical approach . . . which recognises that market liquidity is beneficial up to a point but not beyond that point, and dethrones the idea that more liquidity, supported by more trading, is axiomatically beneficial," said Lord Turner.