Both cross-border and domestic bank credit are (generally) denominated in multiple
currencies. The BIS international banking statistics in combination with domestic bank credit
data from the IMF’s International Financial Statistics, along with some assumptions, yield an
estimate of the currency breakdown of total credit to non-banks (either including or excluding
bank credit to governments) in a particular country. This breakdown allows us to express
credit stocks at constant exchange rates (in this particular case, end-Q2 2011 rates).
Economic policy makers, macroprudential supervisors or investors need reliable empiri-
cal estimates of the equilibrium level of credit in the economy. When the level of credit
is low, high dynamics of credit might re°ect an adjustment to the equilibrium, ¯nancial
deepening in emerging economies for instance. When the level of credit is high, even a
one-digit growth rate of credit may be considered excessive. Deviations of credit from
its equilibrium often lead to a widening of macroeconomic imbalances, e.g.
Economic policy makers, macroprudential supervisors or investors are interested in reli-
able estimates of the equilibrium level of credit in the economy. While earlier theoretical
and empirical studies concentrated mostly on the aggregate level of credit to the pri-
vate sector or the value of corporate credit, more recent studies focus on the problem
of credit to households.
A major difference between this concept and Kornai’s notion of soft
budget constraints lies in the ex-ante attitude of creditors. While creditors (in particular, the
state) explicitly bail out unprofitable firms (this information is available ex-ante), the adverse
selection in the second case is due to imperfect information: if the relevant information had
been available to the creditors ex-ante, they would have declined to finance the project
altogether (Schaffer (1998)).