Identifying Excessive Credit Growth and Leverage

Lucia Alessi

Financial Stability Review, 2014, vol. 1

Abstract: Excessive credit growth has often been associated with the build-up of systemic risks to financial stability. With the entry into force of a new macro-prudential policy framework in the EU on 1 January 2014, a set of policy instruments has been made available to regulators to address such risks by curbing excessive leverage and/or imposing capital buffers which increase the resilience of the system against potential future losses. This special feature presents an early warning system designed to support macro-prudential policy decisions. Drawing on the historical experience of EU countries, the model aims to assess whether observed leverage dynamics might justify the activation of macro-prudential tools such as the counter-cyclical capital buffer proposed by the Basel Committee on Banking Supervision. The early warning indicators are based on aggregate credit-related, macroeconomic, market and real-estate variables, while the early warning thresholds are derived by considering conditional relationships between individual indicators in a unitary framework. JEL Classification: G00

Keywords: capital buffers; excessive credit growth; excessive leverage; financial stability; systemic risk (search for similar items in EconPapers)
Date: 2014-05
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Related works:
Journal Article: Identifying excessive credit growth and leverage (2018)
Working Paper: Identifying excessive credit growth and leverage (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:fsrart:2014:0001:2

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