Household and international debt (cross-border or in foreign currency) are a potential source of vulnerabilities that could eventually lead to banking crises. We explore this issue formally by assessing the performance of these debt categories as early warning indicators for systemic banking crises.
We find that they do contain highly useful information. In fact, over the more recent subsample for household and cross-border debt indicators, the information is similar to that of the more commonly used aggregate credit variables regularly monitored by the Bank for International Settlements (BIS).
Confirming previous work, combining these indicators with property prices improves performance. We analyze current global conditions based on this richer information-set. This analysis points to the build-up of vulnerabilities in several countries.