Bank of England governor Mark Carney said that BoE is keeping an eye in real estate investment trusts as sudden increase in commercial real estate properties can result to "concerns about financial stability."

According to reuters.com, Carney addresses the European Parliament's economic affairs committee and said "We are watching some developments including...in the publicly traded commercial rest estate market, the unit-trust market, to ensure that is not a potential amplification channel of financial instability."

Though Carney also noted that no actions are being made by the UK, monitoring the market "makes sense" as commercial real estate is the market where "British banks have taken large losses in downturns."

In a report by telegraph.co.uk, deputy governor for financial stability Sir Jon Cunliffe said "prices in London were particularly stretched" and that their latest Financial Stability Report reveals that prime offices in West End are "overvalued."

Carney also noted that Solvency II rules for the insurers are needed to be improved. He said, "In my view, more can be done to ensure that Solvency II creates the right framework for long-term investment." However, he did not clarify which part of the rules that needs changing.

Solvency II is a set of new capital rules for whole of Europe so insurance companies will be more protected.

Carney also said that they "were looking at the forces behind recent bouts of illiquidity, including the so-called 'flash crash' in US Treasuries in 2014 and the 'bund tantrum' this spring."

[We're examining] to what extent there is a regulatory cause versus a change in trading strategies," he added.

A lot of issues has caught Carney's attention which made him criticized the EU bonus caps which, in his opinion, "had 'tempered' regulatory efforts to tackle misconduct and meant the proportion of compensation that can be clawed back had 'gone down substantially'."

What are your thoughts about Carney's approach to possible changes in commercial real estate market? Share it in the comments!