Considering deviations of the credit to income ratio beyond a threshold of 4 percentage points alone as warning signal, would have predicted even 79% of financial crises, although in this case the indicator would have provided a false warning signal in 18% of times.10 In another paper, ECB staff found that defining asset price booms as simple deviations from trend beyond a given threshold11 and classifying the resulting boom periods in high-cost and low-cost depending on the depth of the post-boom recession, broad money and credit developments are among the few early indicators of high cost asset price boom periods.12 I consider it the duty of central banks to communicate the results of their analysis with regard to financial stability and potential risks for the financial system and the economy as a whole to the public.
This conviction is shared by many of my colleagues as can be seen by the increasing number of financial stability reports published by major central banks, including the ECB.