Home Loan Refinancing and New Risk Regulations Top of Mind in 2003

Home loan refinancing and new risk management regulations will be two of the drivers impacting the banking industry over the next year, according to speakers at Ernst & Young's Financial Services Outlook 2003 conference recently held in New York City.

Thanks to interest rate reductions, consumers are refinancing their homes in record numbers in order to free up funds, according to Barry Kroeger, director of Banking for the Americas for Ernst & Young. The result: equity in homes is at the lowest point it has been in a decade.

"Refinancing gives consumers greater cash to spend," said Kroeger. "Consumers are really funding the economy by borrowing from their homes and drawing on equity lines.

While Kroeger expects home refinancing to remain strong over the next year, he cautions that a deceleration may be on the way due to rising housing prices, and notes that housing expansion will be an area to keep a close eye on during 2003.

In addition to home loan refinancing, Kroeger expects regulatory and legislative issues to be a major focus in the banking industry for the coming year. With Basel II Capital Accord and the USA PATRIOT Act already evolving, and a possible Bankruptcy bill on the way, banks must ensure that they have viable techniques for credit and operational risk as well as government disclosure.