This alchemy enabled lenders to expand the volume of their operations and conserve on capital. Fatally, the same mechanism weakened lenders’ incentives for prudent screening and steady monitoring. The resulting  BIS Review 31/2009  1  declines in underwriting standards and lending oversight was one of the main sources of the excessive credit boom. The credit boom had three multipliers.
First, ill-designed compensation schemes for loan managers reinforced the shortening of lenders’ horizons. In the eyes of many loan managers, the short-run gains from an expansion of credit obscured the need for any consideration of the potential losses that their institution could incur over the longer term.