Credit Booms: Implications for the Public and the Private Sector

40 Pages Posted: 22 Jan 2015

See all articles by Tano Santos

Tano Santos

Columbia Business School; National Bureau of Economic Research (NBER)

Date Written: January 2015

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

JEL Classification: E44, E51, E60, H30

Suggested Citation

Santos, Tano, Credit Booms: Implications for the Public and the Private Sector (January 2015). BIS Working Paper No. 481. Available at SSRN: https://ssrn.com/abstract=2552573

Tano Santos (Contact Author)

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