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  • Adair Turner 2013 Stockholm School of Economics Slides

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    vineet_bm
    60 tayangan12 halaman
    The document summarizes how banks in the UK extended more credit over time, fueling rises in asset prices like housing. It shows that UK banks increased lending to households and corporations from 1964 to 2009, with mortgage lending making up over 50% of GDP by 2009. This credit growth was facilitated by falling capital and liquidity ratios at banks. The cycles of credit expansion, rising asset prices, and reinforced risk-taking are explained.

    Deskripsi Asli:

    turner speech on credit and money

    Hak Cipta

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    The document summarizes how banks in the UK extended more credit over time, fueling rises in asset prices like housing. It shows that UK banks increased lending to households and corporations from 1964 to 2009, with mortgage lending making up over 50% of GDP by 2009. This credit growth was facilitated by falling capital and liquidity ratios at banks. The cycles of credit expansion, rising asset prices, and reinforced risk-taking are explained.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    60 tayangan12 halaman

    Adair Turner 2013 Stockholm School of Economics Slides

    Diunggah oleh

    vineet_bm
    The document summarizes how banks in the UK extended more credit over time, fueling rises in asset prices like housing. It shows that UK banks increased lending to households and corporations from 1964 to 2009, with mortgage lending making up over 50% of GDP by 2009. This credit growth was facilitated by falling capital and liquidity ratios at banks. The cycles of credit expansion, rising asset prices, and reinforced risk-taking are explained.

    Hak Cipta:

    Attribution Non-Commercial (BY-NC)
    Unduh sebagai PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    dari 12

    Banks create credit, money and purchasing power

    Bank Loan to entrepreneur Credit to entrepreneurs deposit account

    100

    100

    Institute For New Economic Thinking

    Credit, Money & Leverage

    |1

    Categories of credit
    Loans to businesses / entrepreneurs
    to finance real investment projects!

    Loans to businesses / speculators / investors Mortgage loans to households

    to finance purchase of existing assets!

    to finance residential houses

    Loans to impatient / temporarily cash limited / poorer households


    Institute For New Economic Thinking

    to bring forward consumption

    Credit, Money & Leverage

    |2

    Categories of bank debt: UK, 2009

    bn
    Other corporate Commercial real estate
    232 243

    Primarily productive investment Some productive investment and some leveraged asset play

    Residential mortgage (including securitizations and loan transfers)

    1235

    Mainly purchase of existing assets

    Unsecured personal

    227

    Pure life-cycle consumption smoothing

    Institute For New Economic Thinking

    Credit, Money & Leverage

    3 !"!!

    Credit and asset price cycles


    Increased credit extended

    Increased lender supply of credit

    Increased borrower demand for credit Expectation of future asset price increases

    Increased asset prices

    Favourable assessments of credit risk

    Low credit losses: high bank profits ! Confidence reinforced ! Increased capital base

    Institute For New Economic Thinking

    Credit, Money & Leverage

    !| 4

    Private and public leverage cycles


    5

    Source: McCulley and Pozsar

    Institute For New Economic Thinking

    Credit, Money & Leverage

    !| 5

    What the UK banking system did: 1964


    Banks & Building Societies lending/deposits Private non-financial sector as % of GDP
    Liabilities Assets

    Household lending

    Household deposits

    Corporate lending

    Corporate deposits

    Source: Bank of England

    Institute For New Economic Thinking

    Credit, Money & Leverage

    !"! 6

    Household deposits and loans: 1964 2009


    100% 90% 80% 70%
    % of GDP

    Securitisations and loan transfers Deposits

    Loans

    60% 50% 40% 30% 20% 10% 0% 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

    Source: Bank of England, Tables A4.3, A4.1

    Institute For New Economic Thinking

    Credit, Money & Leverage

    ! "! 7

    Corporate loans by broad sector: 1987 2008

    Source: ONS, Finstats

    Note: Part of the increase in real estate lending may be due to re-categorisation of corporate lending following sale and lease-back of properties and PFI (public finance initiative) lending, but we do not think these elements are large enough to change the overall picture. Break in series from Q1 2008 due to inclusion of building society data. Sterling borrowing only.

    Institute For New Economic Thinking

    Credit, Money & Leverage

    !"! 8

    UK bank balance sheets 2007


    % of GDP

    Liabilities
    UK residents deposits Non-residents deposits (including from banks) Deposits from UK banks Repos Other Capital & reserves

    Assets
    "! Cash, central bank, T-bills, gilts Advances to UK & non-residents Market loans to UK residents Market loans to nonresidents (including banks) Market loans to UK banks Repos Investments Other

    Total = 497%

    Institute For New Economic Thinking

    Credit, Money & Leverage

    !"!9

    Long-term trends in bank capital & liquidity ratios


    Sterling liquid assets

    Source: Bank of England and Bank calculations.

    Institute For New Economic Thinking

    Credit, Money & Leverage

    | 10

    Credit and asset prices: with securitised credit and mark-to-market accounting
    Increased new credit extension at lower spreads Increased real asset prices, e.g. real state

    Increased on balance sheet lending at low spreads

    Increased investor demand for credit securities at lower spreads

    Increased price/ reduced spreads of credit securities

    Favourable assessments of credit risk

    Expectation of future asset price rises

    Mark-to-market accounting generates bank profits and capital increase ! High bonuses and motivational reinforcement ! Increased capital for own account trading or on balance sheet lending

    Institute For New Economic Thinking

    Credit, Money & Leverage

    ! | 11

    Velocity of money circulation


    Velocity of Money (Nominal GDP/M2) Velocity of Money (Nominal GDP/M4)

    Source: Bank of England, Bank of Japan, Datastream

    Institute For New Economic Thinking

    Credit, Money & Leverage

    ! "!12

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