The Financial Regulator is considering placing limits on the amount of debt Irish households can accumulate by putting credit growth 'dampers' on banks as the French and German authorities do.

The regulator is looking at introducing restrictions on loan-to-value ratios on mortgages, among other possible measures, to keep borrowers from racking up huge liabilities as they did during the housing bubble. Such changes would mark a dramatic change from the free-and-easy approach to credit which has prevailed in Ireland since the introduction of the euro.

New assistant director general for Financial Institutions Supervision Jonathan McMahon alluded to the changes in a speech to the Mazars banking conference in Dublin last week.

"Consumers' ability to access credit is largely unfettered," he said. "There is also no direct regulation of credit limits, for example through restrictions on LTV ratios. This has meant that Irish households have been able to accumulate liabilities more easily than consumers in countries where there is stricter regulation, for example France or Germany. We must take account of the absence of such 'dampers' in our supervision of banks."

A spokeswoman for the regulator said there would be no action until there had been a constructive and wide-ranging debate on the subject. She said credit limits were not being looked at in isolation, but alongside several other areas of banking supervision.

"The speed and size of growth in credit to households clearly contributed to the unsustainable boom which occurred in Ireland," the spokeswoman said. "We do not think this issue, however difficult and complex, can be ignored. We will therefore undertake further work to understand the dynamics of the market for consumer credit, and also how other countries manage consumer credit."

The news comes after head of financial regulation Matthew Elderfield last week said mortgage arrears would be the "biggest legacy" of the economic crisis. He also said distressed borrowers should not be bailed out since it would create bad incentives for future borrowers while punishing the prudent.

"We must be careful that any approach doesn't provide financial incentives for the arrears problem to get worse," he said at the Insurance Institute of Ireland's conference in Dublin last week. "And, in seeking to assist households in difficulty, we need to recognise that the cost of any support will be borne by those neighbours who avoided excessive borrowing themselves or are gritting their teeth and meeting their obligations."