Capital formation has shown substantial rates of growth, surpassing those of consumption, as typically occurs over business cycles. Nevertheless, and despite recent signs of deceleration, during the last two years consumer spending has been increasing at a fairly stable annual rate, close to 4 percent.
If we think of this in a domestic context, the principle is well understood. In the long run, we might expect market discipline to ensure that banks maintain high standards of balance-sheet quality and risk control. But in the short run, we know that if a bank tries to expand quickly by lowering its standards, it can be highly destabilising for the system.