Credit expansion and credit restriction: domestic experience of monetary regulation. See pages where the term credit expansion is mentioned Credit expansion involves
Depending on the state of the economic situation, two main types of monetary policy are distinguished, each of which is characterized by its own set of tools and a certain combination of economic and administrative methods of regulation.
Restrictive monetary policyis aimed at tightening conditions and limiting the volume of credit operations of commercial banks by increasing the level interest rates. Its implementation is usually accompanied by an increase in taxes, cuts in government spending, and other measures aimed at curbing inflation and improving the balance of payments. Restrictive monetary policy can be used both to fight inflation and to smooth out cyclical fluctuations in business activity.
Expansionary monetary policyis accompanied, as a rule, by the expansion of lending, the weakening of control over the increase in the amount of money in circulation, the reduction of tax rates and lowering the level of interest rates.
In terms of the scale of impact, monetary policy can be total and selective. With a total monetary policy, the measures of the Central Bank apply to all credit institutions, with a selective one - to individual credit institutions or their groups, or to certain types of banking activities.
3.Tools and methods of monetary regulation
In world economic practice, central banks use the following main instruments of monetary policy:
Change in the required reserve ratio or so-called reserve requirements
The interest rate policy of the central bank, i.e. changing the mechanism for commercial banks to borrow funds from the central bank or deposit funds of commercial banks with the central bank
Operations with government securities on the open market
The operations of the central bank in the open market are currently the main instrument of monetary policy in world economic practice. The central bank sells or buys securities at a predetermined rate, including government securities that form the country's domestic debt. This tool is considered the most flexible tool for regulating credit investments and liquidity of commercial banks.
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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, known to the world for more than one decade, 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 impact 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 value turns out to be limited, reduces the problem to the narrowing of lending 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 Big 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, export of capital) .
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 security, attracted resources, loan fees, credit benefits, loan capital export, export loans and the geography of credit products.
Ten years ago, household lending 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 object to an aggregate object, 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 variety of types valuable papers financial instruments (shares, bonds, promissory notes, 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, in the orbit of collateral, various credit derivatives are beginning to acquire an increasing scale, in volume significantly exceeding the volume of gross domestic product. "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, an intensive, large-scale development of credit, accompanied by an increase in the supply of credit, and an expansion in 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 indicate 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 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 savings, 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 borrowed capital in order 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 credit limits for 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. Very useful for the development of lending can be governmental support, the development of a network of credit institutions, the regional segment of the banking sector and some other factors.
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 and individuals, 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 the share of unsecured, prolonged 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 can be used to assess the effectiveness of lending.
In general, these indicators can be used by the issuing bank to strengthen macroeconomic regulation.
credit expansion bank currency
Literature
1. First sensible 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.
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Monetary policy of the state-a set of actions taken by the state in the field of regulation of monetary circulation and credit.
The main instruments of monetary policy are:
1. open market operations, i.e. transactions with government bonds (buying them from banks and the public leads to an increase in money in circulation; selling them to banks and the public reduces the money supply);
2. changes in the reserve norms of commercial banks (an increase in reserve norms leads to a decrease in the amount of money in circulation; a decrease in required reserves increases the amount of money);
3. changes in the discount rate (accounting or discount policy), i.e., the interest rate at which central banks collect payments on loans to commercial banks (an increase in the rate limits the money supply; a decrease reduces it).
In addition, direct regulation by the state of the interest rate and the establishment of lending limits for commercial banks are applied.
Monetary policy is the main instrument of state regulation, according to economists of the monetarist school. This direction was formed as a kind of protest against Keynesianism, because monetarists consider money to be the main tool for influencing the economy, which is practically not present in numerous Keynesian models. The ideological sources of monetarism must be sought "in the quantity theory of money, on which the classical monetary theory was based"1.
According to M. Friedman, the leader of the monetarists, monetary regulation has a significant impact on the cyclical nature of economic processes, and this impact manifests itself with a certain time lag. Thus, fluctuations in the money supply lead to both "peaks" of the cycle, which are late by 16 months, and to crises, which are one year late.
M. Friedman recommends completely abandoning a consistent monetary policy, which still leads to cyclical fluctuations, and sticking to the tactics of constantly increasing the money supply, and empirically, the American scientist came to the conclusion that the optimal growth of money in the economy should be 4% per year.
For this rule to work, according to M. Friedman, it is required:
1) determine the stock of money to which it refers;
2) establish how the growth rate should be determined;
3) establish what assumptions need to be made for intra-annual or seasonal changes.
One of the reasons for the crisis in the Kazakh economy in the early 90s. many authors consider attempts to import certain monetarist constructions onto Kazakhstani soil, for example, a tight monetary policy aimed at combating inflation and budget deficits. However, supporters of the implementation of this model in Kazakhstan did not take into account the lack of congruence between Western and national economy with its specific regional, industry and technological features.
The main types of monetary policy are:
1) credit expansion (policy of cheap money) - a policy aimed at stimulating credit relations in the country and money emission;
2) credit restriction (policy of expensive money) - limitation of emission and lending.
1. The policy of cheap money is used in the context of a cyclical decrease in output and rising unemployment. The central bank resorts to purchasing securities (bonds, treasury bills) from the public and commercial banks, lowers the reserve ratio and lowers the discount rate of interest (or the refinancing rate, i.e. the rate at which the state bank collects payments on loans issued to commercial banks ).
As a result of these measures, the so-called transmission (transmission) mechanism is activated, leading sequentially to:
1) an increase in the money supply;
2) falling interest rates of commercial banks;
3) growth of investment expenses of enterprises;
4) an increase in the real net national product.
Credit expansion also leads to the inclusion of transmission at the level of the country's international relations. Sequentially happens:
1) reduction in demand for the national currency abroad;
2) depreciation of the national currency;
3) increase in net exports.
2. The policy of expensive money is applied in conditions of an increase in the general level of prices. The central bank sells securities, while increasing the reserve ratio and the discount rate. As a result, the money supply decreases, the interest rates of commercial banks increase, the volume of investments of enterprises decreases, and the rise in prices decreases.
Credit restriction at the international level leads to an increase in demand for the national currency abroad, an increase in the value of the national currency and a decrease in net exports.
The effectiveness of credit expansion and restriction depends on the following components:
a) from the speed of decision-making by the central bank (as a rule, decisions to change fiscal policy are made by parliament and are discussed for a long time);
b) isolation of central bankers from the pressure of lobby groups.
In general, the main objectives of monetary policy can be considered1:
1. increase in real GDP;
2. lowering the unemployment rate;
3. price stabilization;
4. achieving the stability of the balance of payments.
The main types of monetary policy are credit expansion and credit restriction.
credit expansion(English credit expansion), or cheap money policy (eng. easy money policy) - a policy aimed at stimulating credit relations in the country and the issue of money.
The policy of cheap money is used in conditions of cyclical decline in output and rising unemployment.
Tools credit expansion:
Acquisition of securities (bonds, treasury bills) from the public and commercial banks;
Reduction of the reserve norm;
Lowering the discount rate of interest (or the refinancing rate, that is, the rate at which the state bank collects payments on loans issued to commercial banks).
As a result of these measures, the so-called transmission (transmission) mechanism is activated, leading sequentially to:
1. an increase in the money supply;
2. falling interest rates of commercial banks;
3. growth of investment expenses of enterprises;
4. increase in real net national product.
Credit expansion also leads to the inclusion of transmission at the level of the country's international relations. Sequentially happens:
Reducing the demand for the national currency abroad;
Depreciation of the national currency;
Increase in net exports.
Credit restriction(eng. credit restriction), or the policy of expensive money (eng. tight money policy) - restriction of emission and lending.
The policy of expensive money is applied in conditions of an increase in the general level of prices.
Tools sold by the Central Bank when selling credit restriction:
1. sale of securities;
2. a parallel increase in the reserve ratio and the discount rate.
1. the money supply is reduced;
2. interest rates of commercial banks are increasing;
3. the volume of investments of enterprises is reduced;
4. the rise in prices decreases.
Credit restriction at the international level leads to:
1. growth in demand for the national currency abroad;
2. increase in the value of the national currency;
3. reduction in net exports.
Factors of efficiency of credit expansion and restriction:
The speed of decision-making by the central bank (as a rule, decisions to change fiscal policy are made by parliament and are discussed for a long time);
Degree of isolation of central bankers from the pressure of lobby groups.
Main monetary policy objectives in general can be considered:
Increase in real GDP;
Reducing the unemployment rate;
Price stabilization;
Achievement of stability of the balance of payments.
credit expansion
credit expansion
Credit expansion - an intensive expansion of credit operations of banks in order to extract additional profit.
In English: credit expansion
See also: Credit operations
Finam Financial Dictionary.
See what "Credit expansion" is in other dictionaries:
credit expansion- (Credit expansion) - stimulating credit operations by lowering interest rates, allocating preferential loans and other similar measures taken (under certain circumstances) - to boost the economy ... Economic and Mathematical Dictionary
credit expansion- Stimulation of credit operations by lowering interest rates, providing soft loans and other similar measures taken (in some circumstances) to boost the economy. Topics economics EN… … Technical Translator's Handbook
CREDIT EXPANSION- (English credit expansion) - distribution, intensive expansion of credit transactions and bank operations in order to make a profit. The main goal of K.e. - the struggle for the most profitable markets, sources of raw materials, areas of capital investment. External K.e.… …
credit expansion A concise dictionary of basic forestry and economic terms
credit expansion- stimulating lending operations of banks (policy of "cheap money") in the expectation that lending will contribute to the economic revival and growth of production ... Dictionary of economic terms and foreign words
- (domestic credit expansion) Part of the increase in the money supply in circulation, not due to an excess of the balance of payments. The growth of the money supply in circulation can occur due to an excess of the balance of payments received either from the current account or from ... Economic dictionary
CREDIT POLICY- (English credit policy) - a set of measures to manage the volume of loans and the level of interest rates, regulation of the loan capital market. K.p. is an integral part of the economy. government policy aimed at regulating the economic. growth... ... Financial and Credit Encyclopedic Dictionary
English credit expansion intensive expansion of credit operations of banks in order to make a profit. Dictionary of business terms. Akademik.ru. 2001 ... Glossary of business terms
EXPANSION, CREDIT- intensive expansion of credit operations of banks in order to make a profit ... Big Economic Dictionary
Money-credit policy- (Monetary policy) The concept of monetary policy, the objectives of monetary policy Information on the concept of monetary policy, the objectives of monetary policy Content >>>>>>>>>> … Encyclopedia of the investor
Books
- Credit expansion and credit management. Tutorial
- Credit expansion and credit management: a textbook, Larionova Irina Vladimirovna, Lavrushin Oleg Ivanovich, Valentseva Natalya Igorevna. Contains a broad analysis of modern phenomena in the field of lending. Credit expansion is disclosed from the standpoint of analyzing its nature, the variety of manifestation forms, assessment indicators, as well as…
