In some cases, PCRs impose a floor for the credits that are to be reported. This leaves unregistered a large number of borrowers that account for a small share of bank credit. While these floors prevent the databases from ballooning, by systematically excluding small debt data (e.g. microcredit data) they impose a censoring on the database that may undermine the reliability of some of the analysis performed. In the end, operators of the PCR need to strike a balance between the advantages of a complete picture of the credit market with the challenge that an enlarged PCR may impose (e.g. the potentially higher marginal cost and time implications of collecting and managing smaller credit information by both the banks<sup>34</sup> and regulators/supervisors).

Given the need to strike a balance, PCRs can outweigh such costs undertaken by banks by providing them with credit information that can facilitate their credit risk management practices. This is of particular importance when PCRs are the only source of positive information in the credit information market, since in some countries private credit bureaus are nonexistent or unable to obtain and distribute positive information. In these cases, by downscaling PCRs, lower income borrowers are able to demonstrate their payment behavior.

# **VII. Concluding remarks**

Much of the recent literature in banking and financial stability topics has addressed the causes of the subprime crisis. In some cases, the literature highlights the flaws and loopholes of rigid regulations and supervisory processes that failed to react to the imbalances and vulnerabilities as they built up in the preface of the crisis. Other literature stresses the psychological drivers of the subprime crisis; analyzing how borrowers embarked into a borrowing frenzy fueled by myopic investors and insufficient knowledge of ABSs and CDOs. Once the crisis was rolling, the panic in the market place also played a prominent role. In all these factors some sort of informational vacuum was present: the extent to which households had overstretched their repayment capacity and their exposure to an upside in interest rates, banks holdings of equity tranches of securitizations and their off-balance sheet exposure to securitization conduits (i.e. liquidity facilities), banks concentration to certain protection sellers, and protection sellers concentration to subprime mortgages.

Alas, although regulatory and supervisory frameworks are being enhanced with the lessons learnt, the financial industry will likely find ways (i.e. new instruments) to circumvent the improved regulatory fence. And while the authorities are willing to embrace a macroprudential approach to financial system oversight, its ability to neutralize the pro-cyclical nature of banking systems and to unwind market manias, are still uncharted waters. Financial crisis have been frequent in the past and, unfortunately, they will likely repeat in the future.

Against this backdrop, the importance of complete, accurate and timely information on the credits in the financial system is evident. Both in normal times and during crises,

> 34 Reporting institutions - particularly smaller ones - may also benefit from having to report to PCRs, to the extent that it requires that they collect and organize data on their credit exposures. In these cases, regulatory/supervisory reporting requirements operate as a guide to building their internal databases for credit risk management purposes.

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