The Swelling Sea of Global Credit
February 22, 2013    Disclosures    POSTED IN  Economy

Over the 50 year period of 1961 to 2011, the amount of domestic credit provided by the banking sector around the world, as a percentage of yearly worldwide gross domestic product (GDP), has grown dramatically. Globally, in 1961, the amount of domestic credit provided by the banking sector, as a percentage of GDP was 78%. Fifty year later this percentage had more than doubled.

For many countries the rapid expansion begin in the early 1980s as interest rates in many developed nations began the secular decline that has continued through today.

The expansion in the extension of credit can signify the development of the banking sector within an economy, and as argued in this paper, can influence the level of economic growth experienced by a country. Of course additional considerations, such as interest rates, default rates, economic health and other factors have to be considered for a more comprehensive view.

(click the image for a larger view)

Domestic Credit Provided by Banking Sector
Data Source: The World Bank

Per the World Bank domestic credit provided by the banking sector is defined as:

Domestic credit provided by the banking sector includes all credit to various sectors on a gross basis, with the exception of credit to the central government, which is net. The banking sector includes monetary authorities and deposit money banks, as well as other banking institutions where data are available (including institutions that do not accept transferable deposits but do incur such liabilities as time and savings deposits). Examples of other banking institutions are savings and mortgage loan institutions and building and loan associations

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