Private nonfinancial sector credit grew by an average of 10% a year in the 20 year period before the crisis. Looked at through another lens, the level of indebtedness, the aggregate debt to income level of UK households is around 135%, some way below its crisis level of 160%. It dropped sharply after the crisis and has hovered around its current level for the last few years. But though it is below its pre-crisis level, it is again high by historical standards; average household debt to income between 1990 and 2006 was 110%. It also remains high by international standards; household debt to income is around 85% in Germany, 110% in the United States and 120% in Spain. Putting all of these high-level aggregate indicators together, the level of credit in the economy is beginning to grow again. It is not at pre-crisis levels and indeed looks below averages that include the long build-up of credit in the economy before the crisis. But if you look further back, it is high by historical standards. And it is high by international standards. 2  BIS central bankers’ speeches  The high-level picture, of course, can only tell you so much. It is clear that important though they are, these high-level indicators cannot be linked mechanically to the assessment of risk or to action to address it.
A third will be how far in advance one needs to act. If you thought that the impact of changes in the CCB happened with a lag, that there were benefits in a CCB above zero that could be relaxed, that risks were building or that there were benefits to moving policy gradually, these would point to moving earlier rather than later in the cycle. This approach is intended to maintain the resilience of the system over the cycle. But, clearly, requiring banks to hold more capital will very probably also have a dampening effect, leaning against the cycle. The third approach to time varying macroprudential policy I mentioned would take this further. It would set policy with the explicit objective of pushing back on the cycle until the level and perhaps the composition of credit was judged to be more acceptable in risk terms. This of course would be a bigger “call” for the macroprudential authority than targeting resilience. Again it requires a very careful assessment of costs and benefits. I do not think the macroprudential policy framework should “start” there; the starting point should be maintaining resilience. But given the history and the objective of maintaining financial stability, I do not think that the macroprudential authority can foreswear making such calls when necessary. Indeed, the FPC has implicitly already done this in taking action on the flow of high loan to income mortgages.