And even those who look mainly to the United States - where both the market and the currency relationship have been more stable - faced intensified competition from the rest of the world. BIS Review 5/2000  2  These effects were not, of course, peculiar to Scottish businesses. They applied equally to all similarly internationally-exposed businesses throughout the UK. Each region has its own particular business characteristics so that some were affected more than others - with some English regions worse affected than the overall economy here in Scotland. But the effects were just as damaging to similar businesses wherever they were located, so that the differential impact was felt within regions throughout the UK not just between them. These cries of pain from the most severely affected businesses and sectors right across the UK I really do understand. The question is what can we do about it through the operation of monetary policy? The problems - as I have explained - derive essentially from developments abroad, and there is not much that we can do directly about them, although both the Bank and the Government are very actively involved in the wider international debate on how to bring about greater stability and better balance in the global economy. Of course we take full account, in our forecasts and in our policy judgements, of the implications of the international environment for our own economy. That is why we moved aggressively to cut interest rates from the autumn of 1998 and early last year.
The legacy of those losses has likely limited the banking sector’s ability to extend new loans during this expansion, as banks acted in a highly precautionary way to accrue capital that had been depleted as well as to add to their previous capital levels. The need for banks to repair their balance sheets following the financial crisis contributed to the far slower growth of outstanding bank loans during this expansion when compared to previous long expansions. Real outstanding loans to businesses, which are dominated by bank loans, declined more in this recovery than in previous recoveries (Figure 4). On the household side, real outstanding residential mortgages, which are largely originated by banks, have declined through most of this expansion while they grew steadily in previous expansions (Figure 5). Consumer credit has risen at a modest rate in this recovery – comparable to that of the last cycle (Figure 6). This category includes auto loans, credit cards and other consumer debts that are mainly originated by banks. But it also includes student loans where the federal government is the dominant lender. Student loans have risen robustly during this expansion, and have driven much of the rise of overall consumer credit. We will have much more to say about them later in today’s briefing. The U.S. financial system relies more heavily on capital markets than other advanced economies. Bonds and other negotiable debt instruments are an important source of funding to credit-worthy corporations.