Implementation of stability policies in all EU Member States
The credit crisis was preceded by a period of strong credit growth and rising asset prices. The credit crisis is not unique in this regard: international research shows that periods of strong credit growth often culminate in a financial crisis and a strong economic downturn. As a result, broad consensus has emerged on the importance of financial stability policies aimed at the stability of the financial system as a whole. These policies ultimately aim to achieve a more stable development of economic growth and employment.
With effect from this year, new European regulations have been available, which may be used to define the stability policies of individual European countries. These regulations resulted from intensive cooperation between international panels of experts, created to give substance to objectives, instruments, and possible mandates that countries may use as a basis for defining their own policies. A major breakthrough in this respect was the agreement that the European Systemic Risk Board (ESRB) recently reached on the manner in which the instruments may be deployed (see the link to the report at the bottom of the page).
Implementation in the Netherlands
The core of the new stability policy is that it focuses on the link between the financial cycle, the financial sector's resilience, and the costs of financial instability to the real economy.
Research shows that cycles in credit growth and house prices are strongly correlated at the national level. Stock market cycles tend to last for shorter periods of time, are more correlated across countries, and are more strongly driven by external variables such as US monetary policy (Drehmann et al., 2012, Cleassens et al., 2011). That is why, at country level, average credit growth and changes in house prices are used as indications of the financial cycle (Borio, 2012).