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.