US monetary policy 'undermined by banks' mortgage dominance'

16 October 2012

The efficacy of monetary policy in the US is being diluted by the fact a small number of major banks continue to dominate the country's mortgage market.

That is the opinion of Bill Dudley, president of the New York Federal Reserve, who believes these financiers are currently benefitting from their "concentration" of home loan sales, as this enables them to avoid passing on low interest rates to customers, the Financial Times reports.

With this in mind, Mr Dudley urged policymakers to look into ways they can "foster competition in mortgage origination to ensure a more complete pass-through of low secondary mortgage rates to households".

Last month, the national Federal Reserve announced its latest round of quantitative easing, which involves an additional $40 billion per month being injected into the home loan market in an attempt to lower mortgage-backed securities yields.

However, Mr Dudley feels this measure is being undermined by several fundamental flaws in the industry.

By Asim Shah

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