This lack of linkage between the financial system and the real sector was one of the critical factors contributing to the global financial crisis and hence, the importance of this linkage has been one of our important learnings from the crisis. What are our strengths?
The policy worked in the short term. The full effect, however, was that the U.S. experienced a credit boom with consumers increasing their debt from 80 percent of disposable income to 125 percent. Banks increased their leverage ratios – assets to equity capital – from 15-to-1 to 30-to-1.