Chapter

Financial Fragility in the Personal Sector

E. Philip Davis

in Debt, Financial Fragility, and Systemic Risk

Published in print October 1995 | ISBN: 9780198233312
Published online November 2003 | e-ISBN: 9780191596124 | DOI: http://dx.doi.org/10.1093/0198233310.003.0004
Financial Fragility in the Personal Sector

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Complementing the previous chapter, this chapter seeks to assess the causes and implications of developments up to the early 1990s in personal‐sector indebtedness and default in the major economies. A number of common features can be discerned for several of the countries: rising levels of debt/income ratio and (to a lesser extent) debt/asset ratios; apparent declines in credit rationing; rising levels of default, particularly, but not exclusively, during recessions; and frequently also declining household sector saving ratios. It is suggested that these features can partly be related to financial deregulation and financial liberalization. The chapter is structured as follows; first, data are presented relating to personal‐sector indebtedness; then a theoretical approach to the house hold sector's demand for credit is outlined. These provide background for the analysis of the third section, where an interpretation is made of empirical trends based on the theory; and the fourth, where an econometric analysis is made relating debt to default. In a further section, patterns of indebtedness are related to changes in saving ratios and asset prices. The results, inter alia, enable an assessment to be made in the conclusions of the net benefits of financial liberalization as they relate to the personal sector, and lead on to certain policy implications.

Keywords: asset prices; credit rationing; default; demand for credit; financial deregulation; financial liberalization; household sector; indebtedness; personal sector; saving ratios

Chapter.  8484 words.  Illustrated.

Subjects: Financial Markets

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