Speech at the Federal Reserve Bank of San Francisco, 29 November. BIS central bankers’ speeches  17  Figure 1 Business cycle and financial cycle  Business cycle Financial cycle  Table 1 Increases in expenditure for standard households due to policy measures SEK and per cent Luleå 39 000 Disposable income (SEK/month) Total debt (SEK) 1 100 000 Debt ratio (%) 235 Increase in expenditure in SEK Countercyclical capital buffer 128 1 100 Tax relief Mortgage cap 1 229 Amortisation expenditure 1 078 Interest expenditure 151 Amortisation 1 833 Increase in interest rate 1 283 Increase in expenditure as a percentage of disp. income Countercyclical capital buffer 0.3 2.8 Tax relief Mortgage cap 3.2 Amortisation expenditure 2.8 Interest expenditure 0.4 Amortisation 4.7 Increase in interest rate 3.3  Upplands Väsby  Central Stockholm (high debt ratio)  44 000 1 750 000 331  55 000 3 950 000 598  204 1 750 1 956 1 716 240 2 917 2 042  461 3 950 4 415 3 873 542 6 583 4 608  0.5 4.0 4.4 3.9 0.5 6.6 4.6  0.8 7.2 8.0 7.0 1.0 12.0 8.4  Source: The Riksbank. 18  BIS central bankers’ speeches
One such area, in which both the Financial Policy Committee and Prudential Regulation Committee have been taking a keen interest, is leveraged lending – in other words lending to highly-indebted companies. We have said a lot about this over the last year so I will confine myself to a brief comment only. That comment is that sometimes horizon-scanning does not require binoculars, because the object of study is already at the front gate. I think it would be very odd if we did not pay close attention to a class of lending which grew globally at a rate of 16% last year, and in which there has been a very significant slide in underwriting standards. Further, much of the lending is being funnelled through banks to a variety of end-investors who may or may not understand what they are getting into. A key determinant of risk in these products is the 4  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  4  leverage, but measuring leverage is difficult. Analysts often adjust leverage measures to remove large one-off costs and account for optimistic future growth in earnings. These so-called ‘add-backs’ have been growing steadily in recent years, so the risk metrics in an analyst’s company report are increasingly likely to contain some heroic (or unrealisable) assumptions. The potential risks to banks here are both direct, and indirect through the impact of corporate indebtedness on the economy. Compared to this, the move up the risk curve of UK lenders in the mortgage market looks rather benign.