It has already been noted above that it would be a mistake to look at credit expansion only as a way of government intervention in the market. Uncovered instruments do not come into being as a public policy tool specifically aimed at high prices, high nominal wage rates, lowering the market rate of interest, and canceling debts. They appear in the course of the normal development of banking. When the bankers, whose demand deposit receipts were perceived by the public as money-substitutes, began to lend out some of the funds placed with them, they thought of nothing else but their own business. They thought it wouldn't do much harm if they didn't keep the full equivalent of issued receipts in cash reserves in their safes. They were confident that they would always be able to meet their obligations and redeem without delay all issued receipts, even if they loaned out part of the deposits at interest. Banknotes become instruments without backing in a free market economy. The progenitor of credit expansion was the banker, not the government.
But today credit expansion is an exclusively state practice. Although private banks and bankers play an important role in issuing uncovered instruments, their role is purely ancillary and only concerns technical details. States alone control the course of events. They have achieved complete dominance in all matters relating to the scope of fiduciary credit. While the scale of credit expansion that private banks and bankers are able to organize is severely limited, governments are aimed at the maximum possible scope of credit expansion. Credit expansion is the main instrument of the state in the fight against the market economy. In his hands it is a magic wand designed to miraculously remove the scarcity of capital goods, reduce or completely eliminate the rate of interest, finance generous government spending, expropriate capitalists, stimulate eternal boom and general prosperity.
The inevitable consequences of credit expansion are demonstrated in the theory of production cycles. Even those economists who still refuse to accept the correctness of the monetary or fiduciary-credit-based theory of cyclical fluctuations in production have never dared to question the credibility and irrefutability of what this theory asserts about the inevitable consequences of credit expansion. These economists must and do recognize that a boom is invariably due to credit expansion, that it cannot arise and continue without credit expansion, and that it turns into a depression when the development of credit expansion ceases. In fact, their explanation of the production cycle boils down to arguing that the boom is initially generated not by credit expansion, but by other factors. They say that credit expansion, even as they see it as a necessary element of the general boom, is not the result of policies specifically aimed at low interest rates and encouraging additional investment that lacks the necessary capital goods. It is something that miraculously always arises without active interference from the authorities, wherever these other factors come into play.
It is obvious that these economists are contradicting themselves when they oppose plans to eliminate fluctuations in production by abstaining from credit expansion. Supporters of the naive inflationist view of history are consistent when, from their, of course, extremely erroneous and contradictory dogmas, they conclude that credit expansion is an economic panacea. But those who do not deny that credit expansion is the cause of the boom, i. a necessary condition for depression, contradict their own doctrine, fighting proposals to curb credit expansion. Representatives of both the state and powerful pressure groups, and the champions of dogmatic heterodoxy that dominate university economics departments, agree that an attempt should be made to prevent a recurrence of depressions, and that the realization of this goal requires avoiding booms. They cannot put forward a logical argument against proposals to refrain from policies that encourage credit expansion. But they are stubborn and do not want to hear anything like that. They vehemently denounce plans to prevent credit expansion as devious designs that will perpetuate the depression. Their position clearly demonstrates the truth of the claim that production cycles are the result of policies deliberately aimed at lowering the rate of interest and creating artificial booms.
It is no secret that today measures aimed at lowering the interest rate are widely considered highly desirable, and credit expansion is seen as an effective means to achieve this goal. It is this prejudice that forces all states to fight the gold standard. All political parties and pressure groups are firmly committed to the policy of easy money [If a bank does not expand fiduciary credit by issuing additional unsecured instruments (either in the form of notes or in the form of deposited money), then it cannot cause a boom, even if it reduces the amount interest charged below the free market rate. He just makes a gift to the debtors. The conclusion to be drawn from the theory of production cycles to those who wish to prevent a recurrence of booms and subsequent depressions is not that banks should not cut interest rates, but that they should refrain from credit expansion. Of course, credit expansion inevitably leads to a temporary downward movement in market interest rates. Professor Haberler (Haberler G. Prosperity and Depression. M .: Izd-vo inostr. lit-ry, 1960. S. 9293) absolutely failed to realize this moment, which is of paramount importance, and thus his criticisms are meaningless. ].
The purpose of credit expansion is to promote the interests of some groups of the population at the expense of others. This, of course, is the maximum that interventionism can achieve when it does not harm the interests of all groups. However, while making the community as a whole poorer, it is still able to enrich some sections. Which groups fall into the latter category depends on the circumstances in each particular case.
The idea that gave rise to what is called quality credit control is to allocate additional credit in such a way as to concentrate the supposed benefits of credit expansion on certain groups and deny them to all other groups. Loans, they say, should not go to the stock market and should not sharply increase share prices. They should benefit the real production activities of the manufacturing industries, mining, real trade and, above all, agriculture. Other advocates of good credit control want to prevent additional credit from being used to invest in fixed capital and thus immobilize it. Instead, they should be used to produce marketable goods. According to these plans, the authorities must give banks specific instructions on what types of loans they should issue and which they should not issue.
However, all these projects are useless. Discrimination in lending is not a complete substitute for prohibitions on credit expansion, the only means that can really prevent the growth of stock market prices and the expansion of investment in fixed capital. The manner in which additional credit finds its way into the loan market is of secondary importance. The only important thing is that there is an inflow of newly created credit. If banks lend more to farmers, farmers are able to repay loans from other sources and pay cash for their purchases. If they provide more loans to manufacturing enterprises to replenish working capital, then they release the funds that were directed to this destination earlier. In any case, they create an abundance of free money, for which their owners are trying to find the most profitable investment directions. Very quickly, these funds find loopholes in the stock exchange or in fixed assets. The notion that credit expansion is possible without a rise in the price of securities and an increase in fixed capital investment is absurd.
Until recently, the typical course of events in the course of credit expansion was determined by two facts: that it was a credit expansion under the gold standard, and that it was not the result of the concerted actions of many national governments and central banks, whose behavior was directed by these governments. The significance of the first fact is that governments were not ready to cancel the convertibility of their country's banknotes in accordance with a rigidly fixed parity. The second fact led to the quantitative diversity of the scale of credit expansion. Some countries were outperforming others and their banks faced the danger of external leakage of their gold and foreign exchange reserves. To maintain their solvency, these banks were forced to resort to drastic credit restrictions. Thus, they created panic and caused depression in the domestic market. Panic soon spread to other countries. Business people in these countries increased their borrowings in fear to protect their liquid funds from any possible accidents. It was this heightened demand for new credit that forced the monetary authorities of their own countries, already alarmed by the crisis in the first country, to also resort to contraction. Thus, within days or weeks, depression became an international phenomenon.
The policy of devaluation somewhat changed this typical sequence of events. Threatened by external leakage, the monetary authorities do not always resort to the help of restricting credit and raising the interest rate in the central banking system.
They are devaluing. However, devaluation does not solve all problems. If the state does not care about the problem of the growth of foreign exchange rates, then for some time it may continue to cling to credit expansion. But one fine day, excessive demand will destroy the monetary system. On the other hand, if the authorities want to avoid having to devalue again and again at an accelerating pace, then they must organize domestic credit policy in such a way that they do not outpace those countries with which they wish to maintain parity of their currency in credit expansion.
Many economists take it for granted that attempts by the authorities to expand credit lead to an almost regular cycle of booming trade and subsequent depression. They believe that the consequences of credit expansion in the future will not differ from those that have been observed since the end of the 18th century. in Great Britain and from the middle of the XIX century. in Western and Central Europe and North America. But we may ask: have the circumstances not changed? The teachings of the monetary theory of production cycles are now so well known even outside the narrow circle of economists that the naive optimism that in the past inspired entrepreneurs during boom periods has given way to a certain skepticism. Perhaps in the future, business people will respond to credit expansion differently than in the past. Perhaps they will avoid using easy money to expand their operations, because they will remember the inevitable end of the boom. Judging by some signs, this process is already underway. However, it is too early to draw final conclusions.
In the other direction, the monetary theory of production cycles is already having some influence on the course of events. Although no official, whether he works in the Ministry of Finance or the Central Bank, or teaches at an unorthodox university, is ready to admit it, but public opinion by and large no longer denies the two main provisions of the theory of fiduciary credit: namely, that that the previous boom is the cause of the depression, and that this boom is generated by the credit expansion. Aware of these facts, the financial press raises the alarm as soon as the first signs of a boom appear. After that, even the authorities begin to talk about the need to prevent further growth in prices and profits and really begin to limit credit. The boom is quickly fading away, a recession begins. The result has been that the cycle length has been greatly reduced in recent decades. The alternation of booms and recessions still continued, but the phases became shorter and followed each other more often. This is very different from William Stanley Jevons' classic 10.5 year crop cycle period. And, finally, and most importantly, when the boom ends earlier, there are fewer misinvestments and, as a result, the subsequent depression is also milder.
Ludwig von Mises "Human activity. Treatise on economic theory"
Monetary policy, which implies the activation of credit transactions and bank financial operations in order to increase the profitability of the business.
Expansion is translated from Latin as expansion. It is the expansion of the sphere of influence that is the defining element of the process of credit expansion.
Process features
Credit expansion is carried out using equity and borrowed funds. In the first case, finances are directed to lending to businesses, financial institutions are expanding the range of banking products. In the second case, debt instruments are issued.The pace of expansion may vary. So, with moderate activation, they follow the economic growth of the state or the development of a single economic unit. With accelerated expansion, the activation of monetary policy outpaces the pace of economic growth.
Expansion can be carried out at the micro level, for one economic entity, and at the macro level, within the state.
Types of credit expansion
Distinguish between external and internal credit expansion. External features:- private and public contributions to foreign markets;
- issuance of export credits;
- dumping, currency and commodity;
- financial assistance to third world countries;
- insurance against certain types of risk (currency, credit, portfolio) of export operations conducted by business.
With internal expansion, stocks and bonds are bought on the open market, currencies from private banking organizations, restrictions on lending volumes and other actions aimed at stimulating the state economy are being lifted.
Credit expansion is not always able to solve the set tasks, since it can bring both positive and negative results. Lack of benefit or even negative consequences occur in the following cases:
- the source of expansion is not real savings, but the issue of securities without collateral;
- the activation of monetary policy is carried out through the issuance of bonds, and not through the expansion of lending services - a more costly, but less risky process;
- expansion proceeds uncontrollably, there is only a statement of the result, positive or negative;
- To activate the process, funds taken on credit are attracted.
credit expansion — Distribution, intensive expansion of credit transactions and bank operations in order to make a profit. (Financial and Credit Encyclopedic Dictionary / Under the general editorship of A.G. Gryaznova.-M., 2002)
The main goal of credit expansion is the struggle for the most profitable markets, sources of raw materials, and areas for capital investment. (Financial and Credit Encyclopedic Dictionary / Under the general editorship of A.G. Gryaznova.-M., 2002)
Credit expansion is carried out within the country through the impact on the economy of the main instruments of monetary policy of the central bank. Credit expansion includes a reduction in the discount rate of the central bank (refinancing rate), a decrease in interest rates on Lombard loans, a change in the norms of required reserves deposited with the central bank (or their abolition), the purchase of securities on the open market, the expansion of purchases from commercial banks of foreign currency, reduction of the interest rate on these operations, the abolition of quantitative restrictions on loans. Creating favorable conditions for commercial banks expands the opportunities for investment in the economy and contributes to the flooding of the financial market with cheap means of payment. However, credit expansion does not always lead to economic recovery. In an unfavorable environment, commercial banks often do not increase their investments in the real sector of the economy, but use them in the securities market to purchase financial assets, such as government securities. In this regard, a stimulating moment in the activity of the state to attract additional credit resources to the economy is a decrease in the yield on government securities. (Modern Financial and Credit Dictionary / Under the general editorship of M.G. Lapusta, P.S. Nikolsky.-M., 2002)
Credit expansion and its limits
In today's economy, credit is once again at the center of events. The financial and economic crisis has revealed the need for deeper research into the role of credit and its impact on the economic environment. The society turned out to be even more interested not only in overcoming the economic recession, in getting out of the state of depression, but also in finding an opportunity to avoid the previous misconceptions and mistakes in monetary regulation. The issue of new economic structures, measures to ensure stable and sustainable development, including with the help of credit instruments, has become the most demanded both in scientific and practical terms.
In theoretical terms, credit expansion, which has been known to the world for decades, turned out to be not at all an ordinary, long-explained phenomenon, but a process demonstrating more and more new aspects of its development. Much that seemed quite clear and understandable raised serious doubts and required further clarifications.
For modern Russian financial and banking science, this problem has become doubly acute. It so happened that credit expansion was more associated with monopolistic tendencies, was readily perceived as a phenomenon characteristic of developed economies, with their characteristic excess of capital seeking more profitable applications. However, it turned out that credit expansion occurs in both developed and developing countries, and its consequences can be very diverse. At the same time, it not only brings troubles, causes crises in production and circulation, but is also capable of providing society with broad opportunities for economic development.
The question, therefore, is not how to deal with credit expansion, but how to properly direct the development of the monetary sphere, which creates disproportions and exacerbates contradictions.
Unfortunately, modern world economic science cannot yet answer such questions. It is possible that this is due to the fact that, in general, credit as an economic relationship was not given due attention, explanations in the cyclical development of the economy were more related to money in isolation from credit - a special phenomenon that has a specific effect on both production and production. and on the exchange and money circulation in general. It seems that the very content of credit expansion, due to the incompleteness of the study of credit, turned out to be disclosed far from being adequate.
As will be shown later, credit expansion is almost universally associated exclusively with the expansion of credit. Such an "expansive" approach to explaining credit expansion, for all its positive significance, turns out to be limited, reduces the problem to a narrowing of credit and the role of credit in social development. In this study, an attempt was made to present credit expansion not only from purely quantitative parameters, but also from a qualitative side, from the side of credit development, due to objective economic processes.
Linking credit expansion with the expansion of lending, the author sees in it only a fragment of its manifestation. The expansion of credit, characterizing credit expansion, may reflect the process of its wider application in the conditions of the underdevelopment of the established credit practice, the process of "satisfying hunger" through the use of credit resources by economic entities experiencing an acute need for borrowed capital. Thus, the expansion of lending occurs not against the background of an excess of loan capital, but due to a significant unsatisfied demand for additional credit resources. The expansion of lending under these conditions does not express the process of credit development, but only the replenishment of the economy's lack of financial resources.
On the whole, it seems that the issues of the essence of credit expansion and the forms of its manifestation have not been adequately analyzed. From a theoretical point of view, the questions remain unclear: what should be considered a credit expansion? when does it occur? in what cases does it lead to a positive or negative impact?
In modern science and practice, the concept of "expansion" has become widespread.
According to the Great Soviet Encyclopedia, the word "expansion" comes from the Latin "expansio" and means expansion, spread. From an economic point of view, it is believed that expansion is the expansion of the sphere of economic influence, the economic action of a country, concern, firm, political associations, groups, states by ousting other countries, firms, capturing markets, acquiring resource sources by economic methods (for example, capital export) .
In the literature on monetary relations, credit expansion is treated as a kind of economic expansion, and its content is also associated with expansion. The origins of this approach can be found in the most prominent representative of the Austrian school of economics, Ludwig von Mises, who believed that credit expansion and credit expansion are synonymous. Subsequently, the definition of credit expansion as "an intensive expansion of credit transactions and bank operations" passed into modern reference literature.
Of course, credit expansion is not only a quantitative process of expanding the scale of lending, but also, according to the characteristics of the International Monetary Fund, "a change in the money supply in circulation", "a multiple increase in the credit supply as credit accounts are opened in a chain of banks"*. From an institutional point of view, credit expansion is not only a phenomenon that affects the macro level of economic relations, but also a process that affects the activities of individual banks. It can be assumed that credit expansion is manifested in the activities of not only the lender, but also the borrower, who is in need of a more capacious attraction of loan capital.
In modern practice, credit expansion noticeably manifests itself in the expansion of subjects, objects and terms of lending, loan collateral, attracted resources, fees for loans, credit benefits, the export of loan capital, export loans and the geography of credit products.
Ten years ago, lending to the population was considered an exotic phenomenon in Russian banking practice, since commercial banks preferred to deal with legal entities. Gradually, the contingent of borrowers changed - both pensioners, people over 70 years of age, and young people, "married couples" - collective borrowers became more and more often lending subjects. If at the beginning of the 21st century loans to individuals accounted for 1-3% of bank loans, by 2011 the share of loans to the population in the loan portfolio reached more than 20%. Of course, this process will continue.
A similar picture is observed with the expansion of lending facilities. With the development of Russian banking practice, more and more material reserves and production costs fall into the orbit of credit. Gradually, banks, both in international and domestic practice, moved from lending to a private facility to an aggregate facility, from lending to inventories to lending costs, the payback of which only in the future could guarantee the return of the loan. It is known that in Western countries some banks and special companies practice the issuance of venture loans.
In practice, credit expansion manifests itself in the form of the development of credit urgency. National statistics state that the horizon of medium-term and long-term loans is gradually expanding.
Credit expansion is also noticeable in the area of expanding the scope of credit collateral. In modern practice, loans are secured not only by the pledge of material values and property, but also by a wide variety of types of securities of financial instruments (stocks, bonds, bills, certificates, insurance policies, etc.). In some cases, the loan repayment is secured not only by the material object of the loan and various financial obligations, but also by the personal property of the borrower.
Unfortunately, in modern practice, various credit derivatives, in volume significantly exceeding the volume of gross domestic product, are beginning to acquire an increasing scale in the orbit of collateral. "Puffed" collateral and related "bubbles", as you know, have become a source of speculation, "overheating" of the economy and, as a result, the cause of the current financial and economic crisis.
Credit expansion can be fueled by the expansion of the resource base of banks. Usually in this case we can talk about both internal and external sources. The internal sources of expanding the resource base of Russian commercial banks turned out to be significantly less than the need for credit, which was demonstrated by enterprises and organizations. Using external sources (loans from foreign banks and companies), resident banks were able to significantly increase their lending investments; the expansion of credit through external borrowing received additional "breath".
The expansion of lending to economic entities can also be carried out through the interest rate policy of banks, which stimulates the demand for credit (reducing the fee for using a loan) and the influx of deposits for their subsequent redistribution on a credit basis. It is known that the low interest rate on loans for the purchase of real estate in the United States led to the widespread development of mortgage loans, however, as it turned out, without a proper assessment of the creditworthiness of borrowers, and in the future - to significant losses for credit institutions.
Credit expansion may be accompanied by credit liberalization. An underestimated "cut-off line" of the borrower, a more liberal approach to assessing its creditworthiness cause an increase in the scale of lending, and in case of unfavorable developments, events turn into a collapse for both the lender and the borrower. According to A. Swiston (Swiston), adherence to credit standards has an impact on the business cycle. A 20% tightening of credit reduces business activity by 3/4% within one year and by 1% after two years. Other authors come to the same conclusions, noting a fall in the level of GDP with a general reduction in the volume of credit.
In external economic relations, credit expansion manifests itself in the form of the export of loan capital and the expansion of export credits. Fueled by an excess of capital within the country, credit expansion overcomes national boundaries, allows creditors to conquer new frontiers and markets, and increases the supply of credit within new geographical boundaries.
For developing countries, credit expansion can occur within national borders, spread to territories that are less covered by banking products and services, but feel the need to develop production and circulation, credit and settlement services. Credit expansion in such a situation makes it possible to develop new territories, promote the development of both individual industries and the regional economy, and the socio-economic development of the country as a whole.
In all these cases, credit expansion manifests itself not as a simple expansion of the scale of lending, but as the penetration of credit into new areas of human activity, intensive, large-scale development of credit, accompanied by an increase in the supply of credit, and expansion of the scale of lent goods.
The expansion of credit is one of the moments of credit expansion. It is known, for example, that in the conditions of economic depression in the post-crisis economy, there is some revival of lending, the return of credit to its previous pre-crisis positions. It can be said that, following the recovery of the economy, the expansion of lending reflects the recovery of credit relations after their crisis state.
Credit expansion begins to manifest itself in full measure after the depression, at the stage of recovery, during the period of accumulation of loan capital, looking for a sphere of monetary support for the noticeably expanding business activity of economic entities.
It is hardly possible to call credit expansion and what is usually called a credit boom. A credit boom is, of course, an expansion of lending, however, in its characteristics, target orientation and economic consequences, it differs significantly from credit expansion. Rather, it is a tactical measure, an operational step in the development of credit services. As far as credit expansion is concerned, this is, in a certain sense, a strategic maneuver of the creditor, affecting its long-term plans. In addition, credit expansion has broader goals. As already noted, credit expansion is aimed at expanding the sphere of influence, mastering new opportunities, markets, and gaining new positions, including in a competitive environment. The credit boom has more local goals - to keep up with others and, taking advantage of the current situation, to make big profits.
An important difference is that credit expansion, as already mentioned, expresses a process of constant development. The credit boom as an extension of credit is just an episode in credit activity. It is more often associated with a massive, rush entry of banks into the credit market, reflects a "herd" reflex, resembles a pre-holiday sale, a sale, the excitement of buyers who want to purchase goods at a lower price. Studies by foreign authors show that the average duration of a credit boom ranges from two to seven years. This circumstance allowed them to define a credit boom "as an episode in which credit growth to the private sector exceeds the normal expansion of credit during the business cycle" . In any case, it is quite clear that credit expansion expresses a long-term trend in credit expansion, while a credit boom is only an episodic process covering a relatively short historical period in credit activity.
Comparing credit expansion and a credit boom, one cannot but pay attention to the fact that credit expansion manifests itself both in the domestic and foreign markets, while the credit boom is associated mainly with the internal movement of loan capital.
Research shows that in developing countries, credit booms contribute more to consumer hype and less to GDP growth.
It should be noted that credit expansion, which we consider as a process of expansion and development of credit, promotes economic growth. Carried out within the framework of real accumulations, it increases the investment resources of commodity producers, ensures the continuity of the reproduction process, accelerates it, and helps to save social costs. It is no coincidence that the cyclical nature of the economy and its rise are closely combined with the expansion of lending to the needs of the economy.
The productivity of credit expansion must, however, be related to the limits of credit.
Unfortunately, this issue, being even more complex, has also not been fully studied both in the world and in the domestic economic literature. It remains unclear not only what should be considered the boundary of credit, but also what turns credit expansion into a negative or positive process. Considering this problem at the macro and micro levels, the author connects its solution with both quantitative and qualitative, both with internal and external boundaries of credit, with its expansion both through real savings and on the basis of fiduciary expansion, as from both internal and external sources. The analysis shows that compliance with these limits of credit expansion can determine the direction of its positive, rather than destructive impact on economic growth.
On a practical level, the credit limit is often considered to be the gross domestic product, the production of which creates the material prerequisites for the return of the loaned value. In practice, however, the size of the loan is often larger than the gross domestic product generated. This situation is quite understandable, since credit can repeatedly mediate various parts of production and circulation and, consequently, in its volume exceed the size of the product produced.
Practice shows that the interpretation of the volume of resources and / or their growth rates does not make it possible to use this indicator as an expression of compliance with the credit limits. It is also important to take into account the fact that the size of the product produced does not mean that those who borrowed will have enough opportunities to repay it. It is not at all a fact that in the case of the production of the corresponding gross product, borrowers will be able to return what they originally borrowed.
More productive information about compliance with the limits of credit are the savings created by society. Savings as a quantitative boundary of the loan are equally important both for expressing the limit of satisfying the needs of the borrower in the use of additional capital, and for its provision by the lender, both for issuing a loan and for its return.
It would also be useful to use the indicators "limit on the ratio", "credit to collateral", "limits on the use of debt capital to increase profits" and "capital buffers for certain sectors of the economy". In this regard, it is important to fully restore banking statistics on lending to sectors of the economy. In the pre-crisis period, when emerging disproportions are discovered, it would be useful to set limits on lending to the economy for large banks. From the standpoint of improving credit management, non-economic factors, such as, for example, competition, are of no small importance. State support, the development of a network of credit institutions, the regional segment of the banking sector and some other factors can be very useful for the development of lending.
Given the huge need of economic entities to borrow loan capital, it seems appropriate to maintain high growth rates of loan investments in the national economy, paying increased attention to investment banking lending, including syndicated lending, project financing, such new types of loans as mezzanine and hybrid financing, and as well as the development of modern investment bank loans (structured, index long-term loans, investment loans with embedded derivatives). In the process of regulating its policy, it is reasonable for the state to form a national banking policy, which would more clearly define the priorities of sectoral lending and its provision with credit resources, modernize the sectoral structure of production, ensuring a departure from the single-industry model of the economy. At the same time, it is important to pay attention not only to the structure of credit investments, but also to the need to eliminate disproportions in lending to regions, legal entities and individuals, and loan terms.
It also seems that in the process of improving credit management, it would be advisable to monitor and evaluate the dynamics of lending on a wider range of indicators characterizing the effectiveness of credit investments, including on the basis of such indicators as the speed of loan turnover in comparison with the turnover of working capital, its profitability, cost, use in related sectors of the economy, labor productivity in the field of lending. Very useful information for evaluating the performance of lending can be the share of unsecured, extended loans in the total volume of loans, the ratio of assets and off-balance sheet liabilities to equity capital of the first level, the ratio between loans and deposits of the banking sector.
In general, these indicators can be used by the issuing bank to strengthen macroeconomic regulation.
credit expansion bank currency
Literature
- 1. The first explanatory Big Encyclopedic Dictionary. - St. Petersburg: Norit; M: ND "Ripol classic", 2006. - S. 2144.
- 2. Mises, Ludwig von. Human activity: a treatise on economic theory / Per. from the 3rd rev. English ed. A.V. Kurzev. -Chelyabinsk: Sotsium, 2005 - S. 405.
- 3. Financial and credit encyclopedic dictionary / Ed. ed. A.G. Gryaznova. - M: Finance and statistics, 2002. -S. 1168.
- 4. Fedorov B.G. New English-Russian banking and economic dictionary. - St. Petersburg, 2006. - S. 221.
- 5. Swiston A. A US Financial Conditions Jndex: Putting Credit where Credit is Due // IMF Working Paper. - 2008. - June.
- 6. Bayouni T., Melander O. Credit Mattars: Empirical Evidence on US Macro-Financid Linkages // IMF, 2008.
- 7. Enrigue G. Mendoza, Marco E. Terrenes. An Anatomy of Credit Booms: Evigence from Marco Aggregates and Firm Level Data. - (IMF), 2008. - P. 5, 7.
In the period from 1991 to the beginning of 1995, the Central Bank of the Russian Federation pursued a policy of credit restriction. The refinancing rate was increased from 20% as of January 1, 1991 to 210% as of October 15, 1993. In the period from April 29, 1994 to August 24, 1994, the rate was gradually reduced to 130%; on 11/17/94 and 01/06/95, respectively). During the specified period (1991 - early 1995), the Bank of Russia increased the required reserves ratio. Thus, as of June 1, 1991, the required reserve ratio was 2%. Gradually raising this ratio, the Bank of Russia from February 1, 1995 introduces a differentiation of required reserve ratios depending on the terms and currency of commercial banks' obligations: for demand accounts and term obligations up to 30 days - 22%, for term obligations of banks from 30 days to 90 days - 15%, for term obligations over 90 days - 10%, for current accounts in foreign currency - 2%.
As a result of these tough measures taken by the main bank on monetary regulation of the economy, the following results were achieved:
Table 1.4.1
during 1991 - 1995
Analyzing the data in the table, we can conclude that the annual value of the consumer price index is significantly higher than the corresponding value of the money supply growth indicator, which indicates the implementation of a monetary policy aimed at shrinking the money supply. Measures on monetary regulation, carried out with the aim of curbing inflation, the goal set for them was realized, as evidenced by the dynamics of the consumer price index.
Since the spring of 1995, the Central Bank of the Russian Federation has been implementing a policy of credit expansion. The refinancing rate was reduced from 195% as of May 16, 1995 to 21% as of October 6, 1997. In the same period, the required reserve ratios change, as evidenced by the data in the table: Table 1.4.2
Change in the norms of required reserves from 1.05.95 to 1.05.97
| Date of change | Reserve requirements depending on the terms of obligations of commercial banks, % |
|||
| required reserve ratio | On demand and up to 30 days | 30-90 days | Over 90 days | For current accounts in foreign currency |
| 1.05.95 | 20 | 14 | 10 | 1,5 |
| 1.05.96 | 18 | 14 | 10 | 1,25 |
| 1.06.96 | 20 | 16 | 12 | 2,5 |
| 1.08.96 | 18 | 14 | 10 | 5 |
| 1.11.96 | 16 | 13 | 10 | 5 |
| 1.05.97 | 14 | 11 | 8 | 6 |
As the data in the table show, the required reserve ratios for the liabilities of credit institutions in rubles in the analyzed period are somewhat reduced, but for accounts in foreign currency they are significantly - 4 times - increased.
As a result of the implementation of these activities, the following indicators were achieved:
Table 1.4.3
Dynamics of the consumer price index and the rate of annual growth in the money supply for the M2 aggregate during 1996-1997
Analyzing the data in the table, we can conclude that there has been a change in the ratio of the dynamics of the consumer price index and the growth rate of the money supply for the M2 aggregate: the growth rate of the money supply exceeded the inflation rate for the analyzed indicator. On the whole, during 1996-1997, the positive trend of declining inflation continues. The situation changes in 1998 as a result of the August crisis. Trying to prevent a crisis, the Bank of Russia, as a monetary authority, raises the refinancing rate. Initially, the rate was increased to 28% as of November 11, 1997, then to 42% as of February 2, 1998, after which a chaotic change in the refinancing rate occurs: in the period from July 11, 1997 to August 1, 1998, the rate changes 10 times , both upwards and downwards. In the same period, the reserve requirements for funds attracted by banks in foreign currency increased: up to 9% as of November 11, 1997 and up to 11% as of February 1, 1998. Despite the measures taken, the crisis could not be prevented. On August 24, 1998, to mitigate the negative impact of the crisis, the Bank of Russia introduces a single standard for funds attracted by credit institutions in rubles and foreign currency in the amount of 10%. For Sberbank of Russia, the required reserve ratio for borrowed funds in rubles was reduced to 7%, after which, a week later, on September 1, 1998, reserve requirements for borrowed funds in rubles and foreign currency for Sberbank of Russia and credit institutions, in which the share of investments in government securities (GKO-OFZ) in working assets is 40% or more, decreasing to 5%; for credit institutions whose share of investments in government securities in working assets is 20-40%, the reserve requirements for attracted funds in rubles and foreign currency are set at 7.5%.
Despite the implementation of these measures, the Bank of Russia failed to prevent an inflationary surge, while the consumer price index for 1998 amounted to 84.4%, the growth rate of the money supply for the M2 aggregate was 20.9%.
In the post-crisis period, the Bank of Russia continues to implement a policy of credit expansion, gradually reducing the refinancing rate. However, at the same time, the main bank of the country raises reserve requirements, as a result of which two instruments of monetary regulation of different directions operate simultaneously, which led to the following results: Table 1.4.4.
Dynamics of the consumer price index and the pace
annual increase in the money supply for the M2 aggregate
during 1999 - 10 months of 2001
Analyzing the data in the table, we can draw the following conclusions: the growth rate of the money supply exceeds the inflation rate based on the consumer price index. With a significant increase in the money supply (by 55.6% in 1999 and 62.5% in 2000), prices for consumer goods increased by 36.5% and 20.2%, respectively. In 2001, the positive dynamics of the decrease in the rate of inflation was observed as well. Consequently, the increase in the total volume of the money supply did not lead to the development of inflationary processes, which also manifests the regulatory role of the country's main bank.
