Global Financial Centers, Economic Power, and (In)Efficiency by Fikret Čaušević

Author:Fikret Čaušević
Language: eng
Format: epub, pdf
ISBN: 9783030365769
Publisher: Springer International Publishing

3.5 Credit Activity and Its Importance for Economic Growth in 2010–2017

Domestic credit activity to the non-banking sector in the 43 BIS reporting countries increased over the period from $135.54 trillion to $176.47 trillion (up 30.2%).16 The leading contributors to this growth were China and the US. China’s banking sector increased total core credit to the non-banking sector by $20.57 trillion (up from $11.41 trillion in 2010 to $31.9 trillion in 2017). Such extremely intensive credit growth had not been seen anywhere in post-WWII economic history. This increase of 180% compared to a “modest” rise of 30.6% in US banking credit activity, up $11.42 trillion (from $37.38 trillion to $48.80 trillion). The total amount of core credit extended to the non-banking sector in China in 2017 was therefore 65.5% of total US credit activity, bringing the Chinese banking industry’s share in total credit activity across the 43 BIS reporting countries to 18.1% (up from 4.7% in 2005). The US banking industry continues to hold the largest share (27.4%), however, but Japan has faced a significant fall.

This decline in Japan’s share, down from 12.5 to 10.2%, was a direct consequence of the sharp fall in credit activity. The process of “cleansing the banks’ balance sheets” of non-performing loans caused the total amount of credit extended to the non-banking sector to drop from $20.98 trillion (in 2010) to $15.98 trillion (in 2015). Over the next two years, credit activity in Japan recovered significantly and the total amount of credit in 2017 was up 12.4% on 2015. Despite this significant increase, the amount in 2017 was still 14.8% smaller than in 2010 (see Table 3.11). The Eurozone, as already briefly discussed, had been facing a very serious situation—the sovereign debt crisis that broke out in 2010, starting with Greece and continuing with Ireland, Portugal, Spain, and Italy. The banking sectors of Germany and France were also seriously impacted by contagion, “imported” at least partially from the US financial crisis (the largest French and German banks were highly exposed to dealings on the US mortgage market in 2002–2008), but also partly from southern Europe sovereign debt crisis. As a result, total core credit to the non-banking sector in the Eurozone fell 4.2% (from $32.13 trillion in 2010 to $30.78 trillion in 2017). By the end of 2017, China’s banking industry had succeeded in overtaking the second position in total credit activity from the Eurozone by 3.9%.17Table 3.11The rate of growth of credit activity to the non-banking sector in the advanced countries for the 2011–2017 period (year-on-year)

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