The beneficial impact of higher credit depends on the extent to which credit booms contribute to a permanent financial deepening.15 It is therefore encouraging that we have new “early warning” models and considerable work on the topic (Alessi and Detken (2013),16 Alessi et. al. (2014)17 and Gregory et. al. (2014)18 presented here at the MaRs conference.
These analytical tools exploit multiple and novel data sources, variables and models in order to generate accurate crisis predictions. Many of these tools are already in use in regular macro-prudential surveillance work at the ECB. Let me summarise. Systemic risk is a largely endogenous phenomenon due to the inherent procyclicality of the financial system.