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Personal debt remains an important factor in many economic models because it encourages people to use debt to finance consumption. Whether this model is sustainable for individuals or the countries in which they reside is an ongoing question of great complexity and many social and economic implications, not only for the burdened individuals and their countries, but also for the EU as a whole. In Personal Debt in Europe, Federico Ferretti and Daniela Vandone examine the 'dark side' of personal debt, or over-indebtedness, in social and economic terms. They employ cross-country consumer-level data to present the latest empirical studies on the problem, analyse these findings to better understand its nature and causes, and discuss the merits of proposed insolvency legislation and harmonisation initiatives in the EU.

Consumer credit --- Loans, Personal --- Debt --- Consumer debt --- Credit --- Indebtedness --- Finance --- Consumer loans --- Loans, Consumer --- Loans, Small --- Personal loans --- Small loans --- Loans --- Law and legislation

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This Technical Note discusses calibration of a debt-service-to-income (DSTI) limit in Romania. The recent pick-up in household credit in Romania has given rise to a need for revisiting the design of existing macroprudential tools addressing household vulnerabilities. The National Bank of Romania is considering a redesign of its existing macroprudential tool related to household indebtedness, including expanding its scope to cover all household loans. The analysis of loan-level data from the Central Credit Register suggests that the probability of default of a borrower is highly sensitive to any changes in DSTI at DSTI ratios at about 50 percent, particularly for mortgage loans. It is recommended to set the limit such that loans do not exceed this sensitivity threshold.

Monetary policy --- Monetary management --- Economic policy --- Currency boards --- Money supply --- Money and Monetary Policy --- Industries: Financial Services --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Finance --- Monetary economics --- Consumer loans --- Loans --- Nonperforming loans --- Credit --- Financial institutions --- Money --- Romania

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Law of obligations. Law of contract --- Savings --- Netherlands --- 347.455 <492> --- Credit --- -Loans, Personal --- -NL / Netherlands - Nederland - Pays Bas --- 347.755 --- V81 - Contrats spéciaux - Bijzondere overeenkomsten --- Consumer loans --- Loans, Consumer --- Loans, Small --- Personal loans --- Small loans --- Consumer credit --- Loans --- Borrowing --- Finance --- Money --- Leningen. Interest. Krediet--(verbintenissenrecht)--Nederland --- Law and legislation --- -Law and legislation --- -Leningcontract. Commerciële lening. Rente. Bankdeposito's. --- Loans, Personal --- 347.455 <492> Leningen. Interest. Krediet--(verbintenissenrecht)--Nederland --- NL / Netherlands - Nederland - Pays Bas --- Leningcontract. Commerciële lening. Rente. Bankdeposito's

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We provide empirical evidence to support the calibration of a limit on household indebtedness levels, in the form of a cap on the debt-service-to-income (DSTI) ratio, in order to reduce the probability of borrower defaults in Romania. The analysis establishes two findings that are new to the literature. First, we show that the relationship between DSTI and probability of default is non-linear, with probability of default responding to increases in DSTI only after a certain threshold. Second, we establish that consumer loan defaults occur at lower levels of DSTI compared to mortgages. Our results support the recent regulation adopted by the National Bank of Romania, limiting the household DSTI at origination to 40 percent for new mortgages and consumer loans. Our counterfactual analysis indicates that had the limit been in place for all the loans in our sample, the probability of default (PD) would have been lower by 23 percent.

Monetary policy --- Macroeconomics --- Money and Monetary Policy --- Industries: Financial Services --- Money Supply --- Credit --- Money Multipliers --- Central Banks and Their Policies --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Personal Income, Wealth, and Their Distributions --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Finance --- Monetary economics --- Loans --- Consumer loans --- Personal income --- Financial institutions --- National accounts --- Money --- Income --- Romania

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We propose a framework to link empirical models of systemic risk to theoretical network/ general equilibrium models used to understand the channels of transmission of systemic risk. The theoretical model allows for systemic risk due to interbank counterparty risk, common asset exposures/fire sales, and a “Minsky" cycle of optimism. The empirical model uses stock market and CDS spreads data to estimate a multivariate density of equity returns and to compute the expected equity return for each bank, conditional on a bad macro-outcome. Theses “cross-sectional" moments are used to re-calibrate the theoretical model and estimate the importance of the Minsky cycle of optimism in driving systemic risk.

Banks and Banking --- Finance: General --- Industries: Financial Services --- Semiparametric and Nonparametric Methods --- Financial Forecasting and Simulation --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- General Financial Markets: Government Policy and Regulation --- General Financial Markets: General (includes Measurement and Data) --- Banking --- Finance --- Systemic risk --- Interbank markets --- Consumer loans --- Loans --- Banks and banking --- Financial risk management --- International finance