12 May 2015

Towards a Balanced Contribution of Household Credit to the Economy

Sylvain Bouyon

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While policy-makers are creating conditions to strengthen recovery, the debate on the role that retail finance should play in this respect focuses on corporate loans rather than on household credit. The improvement of financing conditions for firms in order to support further investment spending is certainly essential to ensuring sustainable growth. However, a significant part of EU growth will depend on the behaviour of households and on their ability to secure funding for their consumption and investment. It is therefore essential to place further emphasis on the different options available to stimulate household credit, in particular consumer loans. Nevertheless, in order to avoid past mistakes, regulators should continue to develop a framework where consumer loans (and by extension household credit) contributes to the economy in a balanced way. To achieve this, five main issues need to be addressed further:

  • -Greater harmonisation in statistical methodologies to support the policy process.
  • -Refinement of macroeconomic models used to boost loans, both in a quantitative way and a qualitative way.
  • -Innovative policy tools to deal with persistent and new market dysfunctions for household credit (especially in the areas of information disclosure requirements and responsible lending practices).
  • -Better understanding of the integration process of household credit.
  • -Accompanying the financial sector throughout its digital transition process.

This report is based on discussions in the CEPS-ECRI Task Force “Towards a Balanced Contribution of Household Credit to the Economy”, which met several times over a concentrated period from May 2014 to April 2015, under the chairmanship of  Eric Delannoy, former Vice President of Weave. Sylvain Bouyon, CEPS-ECRI Research Fellow, acted as rapporteur.