Finance is a vital ingredient of economic growth, but there can be too much of it. Over the past 50 years, credit by banks and other institutions to households and businesses has grown three times as fast as economic activity. At these levels, further expansion is likely to slow long-term growth and raise inequality.

How to restore a healthy financial sector that supports long-lasting growth , Policy note

Finance and inclusive growth , Long paper

Press release: Financial sector must promote inclusive growth

See Catherine L Mann, 蜂鸟电竞在线入口 Chief Economist present, the work on ‌

The long-term costs from credit overexpansion fall disproportionately on the socially vulnerable.

 The empirical work suggests three key mechanisms:

1. Financial sector workers are very concentrated at the top of the income distribution

2. High income earners can and do borrow more

3. The growth of stock market capitalisation has contributed to greater income inequality

The main channels linking the long-term increase in credit and slowing growth:

1. Excessive financial deregulation

2. A more pronounced increase in bank lending than bond financing

3. Too-big-to-fail guarantees by the public authorities

4. A lower quality of credit

5. A disproportionate increase in household credit compared with business credit

The policy response: A better architecture for the financial system

Ensuring that the financial sector contributes to strong and equitable growth involves avoiding credit overexpansion, which hurts growth and income equality, and improving the structure of finance:

1. Avoiding credit overexpansion

2. Improving the structure of finance

 The main papers providing background to this note are:

Cournède, B. and O. Denk (2015), “ Finance and Economic Growth in 蜂鸟电竞在线入口 and G20 Countries ”, 蜂鸟电竞在线入口 Economics Department Working Papers, No. 1223, 蜂鸟电竞在线入口 Publishing, Paris.
Cournède, B., O. Denk and P. Hoeller (2015), “ Finance and Inclusive Growth ”, 蜂鸟电竞在线入口 Economic Policy Papers, No. 14, 蜂鸟电竞在线入口 Publishing, Paris.
Denk, O. (2015), “ Financial Sector Pay and Labour Income Inequality: Evidence from Europe ”, 蜂鸟电竞在线入口 Economics Department Working Papers, No. 1225, 蜂鸟电竞在线入口 Publishing, Paris.
Denk, O. and A. Cazenave-Lacroutz (2015), “ Household Finance and Income Inequality in the Euro Area ”, 蜂鸟电竞在线入口 Economics Department Working Papers, No. 1226, 蜂鸟电竞在线入口 Publishing, Paris.
Denk, O. and B. Cournède (2015), “ Finance and Income Inequality in 蜂鸟电竞在线入口 Countries ”, 蜂鸟电竞在线入口 Economics Department Working Papers, No. 1224, 蜂鸟电竞在线入口 Publishing, Paris.
Denk, O., S. Schich and B. Cournède (2015), “ Why Implicit Bank Debt Guarantees Matter: Some Empirical Evidence ”, 蜂鸟电竞在线入口 Journal: Financial Market Trends, Vol. 2014/2, 蜂鸟电竞在线入口 Publishing.