Credit booms: implications for the public and the private sector

Tano Santos

No 481, BIS Working Papers from Bank for International Settlements

Abstract: The pre-crisis period was characterised by ample liquidity, a credit boom, and low yields in a wide range of asset classes. It was also defined by the accumulation of risks on and off the balance sheets of many financial intermediaries, particularly banks, as well as by a substantial increase in public and private sector debt in some countries. Understanding the relation between liquidity and the excessive accumulation of risks remains a central policy question. How do credit booms affect incentives? In the case of the government sector, credit booms may affect the incentives of different interest groups to agree on policies for reform or fiscal stabilisation. In the case of the private sector, it may change the incentives of originators to produce good assets. Credit booms complicate the evaluation of policies and agents and in addition may facilitate the entrenchment of interest groups and the deterioration of governance institutions.

Keywords: credit boom; liquidity; political economy (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-01
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Citations: View citations in EconPapers (17)

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