Debt in the bank: a market failure?

Today, professor Dirk Bezemer gave his inaugural address on the “Debt shift” at Groningen University. For the occasion, a seminar was organised at which I was invited to discuss a bank’s perspective on managing high private debt. Slides below, here are my main points

  • Private debt has grown tremendously in past decades. Not all good.
  • Stock vs flow: 2008 was shock to flows, but high debt stock still there
  • On flows: Banks have throttled back. Non-bank lending has partly stepped in
  • Tempting to identify global/advanced-economy trends, yet important differences between countries
  • Housing plays important role, being most important collateral for credit
  • External constraints on credit-housing feedback loop necessary
  • Experience in NL: constraints in code of conduct and law
  • Further steps since 2008: tax reform, enhanced LTV price differentiation by lenders, LTV cap
  • But is that enough?
  • In my opinion, market failure makes institutional constraints necessary: macropru
  • Macropru has major challenges: economic, political. Yet we need to try.
  • Much broader view necessary: e.g. construction policy, rental market, room for first-time-buyers

Slides not visible above? Click to download PDF.

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