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Total credit as an early warning indicator for systemic banking crises

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  • Mathias Drehmann

Abstract

Credit-to-GDP gaps are valuable early warning indicators for systemic banking crises. As such, they are useful for identifying vulnerabilities and can help guide the deployment of macroprudential tools such as the build-up of countercyclical capital buffers. In line with Basel III recommendations, credit-to-GDP gaps can be further improved by taking account of all sources of credit to the private non-financial sector, rather than just bank credit. Drawing on a new BIS database, this special feature finds that total credit developments predict the risk of systemic crises better than indicators based solely on bank credit.

Suggested Citation

  • Mathias Drehmann, 2013. "Total credit as an early warning indicator for systemic banking crises," BIS Quarterly Review, Bank for International Settlements, June.
    • Handle: RePEc:bis:bisqtr:1306f
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises

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