{
  "title": "Giving Credit Where Credit is Due: How to Design Policies that Work",
  "publication": "IMF Blog, October 2, 2013",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2013/10/02/giving-credit-where-credit-is-due-how-to-design-policies-that-work",
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  "summary": "Five years into the economic crisis credit is still barely growing, and even declining in many advanced economies.",
  "sections": [
    {
      "heading": "Overview of the problem",
      "content": "- Five years into the economic crisis credit is still barely growing, and even declining in many advanced economies.\n- Weak credit growth is a major factor holding back the economic recovery.\n- Policymakers have tried many policies to jumpstart credit growth, yet banks appear reluctant to lend and it is often unclear whether constraints reflect supply-side reluctance or demand-side inability to borrow."
    },
    {
      "heading": "Key analytical approach",
      "content": "- The Global Financial Stability Report analysis proposes a step-by-step framework:\n  - First, use data from lending surveys to disentangle general demand and supply factors — a first cut to target policies that differ depending on whether credit supply or credit demand is constrained.\n  - Second, attempt to pinpoint the specific factors constraining credit growth (more challenging because these factors are not directly observable, interact, and change over time).\n- Application of the framework to countries with sufficient data shows:\n  - No two countries’ issues are alike.\n  - Constraints are not frozen in time and can shift between demand and supply."
    },
    {
      "heading": "Empirical findings (selected examples)",
      "content": "- In a number of euro area countries:\n  - Early in the crisis, lackluster demand for loans limited credit growth.\n  - As the crisis intensified in 2012, banks became reluctant to supply more loans.\n- United States:\n  - Corporate credit was constrained early in the crisis by a substantial tightening of lending standards in banks.\n  - These constraints have since dissipated (as of the analysis).\n- France and Italy:\n  - Supply constraints have more recently resurfaced in some euro-area countries, including France and Italy."
    },
    {
      "heading": "Costs, risks, and prudential considerations",
      "content": "- The current practice of piling policy upon policy has monetary and non-monetary costs:\n  - Clear upfront fiscal costs (for example, bank recapitalization).\n  - Contingent costs (for example, a credit guarantee scheme).\n  - Obscure costs, including increased risk to financial stability.\n- Example of prudential trade-offs:\n  - Policies encouraging banks to lend to certain sectors (e.g., lowering prudential risk weights for loans to small and medium-sized enterprises) could increase credit risk and potentially inflate nonperforming loans in the future.\n  - Supervisors may waive some normal risk-mitigation practices to compel banks to take more risk, raising the risk to financial stability as an explicit policy cost to weigh."
    },
    {
      "heading": "Policy guidance and recommendations",
      "content": "- Policies are most effective when they correctly target the underlying factors constraining credit:\n  - Example sequencing: support demand early in a crisis (for example, by alleviating over-indebtedness in firms and households), then shift to support credit supply later (for example, by cleaning up bank balance sheets).\n- Recommendations to improve outcomes:\n  - Collect better data, including matched borrower-lender data on new loans.\n  - Use the proposed framework to pinpoint constraints on both the demand and supply sides and track how they change over time.\n  - Apply the analysis to improve targeting of credit-supporting policies so that better-targeted policies would benefit credit creation at a lower cost to the public purse and to future financial stability.\n- Caution against policy overreach:\n  - The authors provide an inventory of the many policies that 42 countries have implemented and note it is not clear that the net benefits of all policies are favorable.\n  - Restraint and careful weighing of costs versus benefits are emphasized.\n\nErik Oppers, October 2, 2013 — Giving Credit Where Credit is Due: How to Design Policies that Work\n\n---\n\n Content in this bundle\n\n- GFSR: Chapter 2: Appendix Table 2.1. Policies Implemented to Support Credit Markets\n  - GFSR: Chapter 2: Appendix Table 2.1. Policies Implemented to Support Credit Markets (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - GFSR: Chapter 2: Appendix Table 2.1. Policies Implemented to Support Credit Markets (PDF){rel=\"external\" type=\"application/pdf\"}\n- Assessing Policies to Revive Credit Markets\n  - Assessing Policies to Revive Credit Markets (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Assessing Policies to Revive Credit Markets (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/blogs/articles/2013/10/02/giving-credit-where-credit-is-due-how-to-design-policies-that-work"
    }
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    "Authors: ErikOppers",
    "Published: October 2, 2013",
    "Five years into the economic crisis credit is still barely growing, and even declining in many advanced economies.",
    "Weak credit growth is a major factor holding back the economic recovery.",
    "Policymakers have tried many policies to jumpstart credit growth, yet banks appear reluctant to lend and it is often unclear whether constraints reflect supply-side reluctance or demand-side inability to borrow.",
    "The Global Financial Stability Report analysis proposes a step-by-step framework:",
    "Application of the framework to countries with sufficient data shows:",
    "In a number of euro area countries:",
    "United States:",
    "France and Italy:",
    "The current practice of piling policy upon policy has monetary and non-monetary costs:",
    "Example of prudential trade-offs:",
    "Policies are most effective when they correctly target the underlying factors constraining credit:",
    "Recommendations to improve outcomes:",
    "Caution against policy overreach:",
    "**GFSR: Chapter 2: Appendix Table 2.1. Policies Implemented to Support Credit Markets**",
    "**Assessing Policies to Revive Credit Markets**"
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