(2007): Overborrowing and Undersaving: Lessons and Policy Implications from Research in Behavioral Economics, Discussion Paper, Federal Reserve Bank of Boston; Heidhues P. et al. (2010): Exploiting Naivete about Self-Control in the Credit Market, American Economic Review 100; Laibson D. et al. (2000): A Debt Puzzle, NBER Paper No. 7879; Meier, Sprenger (2008): Charging Myopically Ahead: Evidence on PresentBiased Preferences and Credit Card Borrowing; Azfar O. (1999): Rationalizing hyperbolic discounting, Journal of Economic Behavior and Organization, Vol. 38. 9  Hume, D. (1739), A treatise of human nature. 4  BIS central bankers’ speeches  encouraging sign, as it shows that deleveraging is not always inconsistent with economic growth. Turning to the indebtedness of households, the diagnosis does not point to easy solutions. Thus, regulatory measures at the microprudential level that enforce stronger discipline on the supply side of credit are all-important. Complementary macro-measures aimed at preventing excessive exuberance should also be deployed. In this context, I am referring to interest rate policies which – whenever feasible – “lean against the wind”, but also to more targeted macroprudential measures which directly address the dynamics of the credit market. The countercyclical capital buffer is an important example. Besides, facing more directly the behavioural biases that are at the root of the problem requires an increased level of “awareness”. In the words of Shefrin (2012), raising people’s awareness means “reminding ourselves of our psychological fallibilities so that we can avert some crises and mitigate others”.10 More specific consumer protection regulations or system design measures come as a second step.

Meier, S. and Sprenger, C. (2008): Charging Myopically Ahead: Evidence on Present-Biased Preferences and Credit Card Borrowing. 10  Shefrin, H. (2012), Behavioral Finance in the Financial Crisis – Market Efficiency, Minsky, and Keynes, discussion paper available at www.russellsage.org/blog/new-research-crisis-and-regulation-financial-sector. 11  Thaler R., Sunstein C. (2008), Nudge – Improving Decisions about Health, Wealth, and Happiness, Yale University Press. 12  A “default” option or “no action required” option could substantially boost participation in pension plans as individuals do not actively have to decide whether or not to make a contribution to savings. However, it does not inhibit their individual freedom to choose, as they can still adjust their contributions. BIS central bankers’ speeches  5  O’Donoghue, R. (1999): Doing it now or later, American Economic Review, Vol. 89, No.1. Rajan R. (2010), Fault Lines, Princeton University Press. Reinhart, C. and Rogoff K. (2010), Growth in a Time of Debt, American Economic Review, American Economic Association, vol. 100(2). Schumpeter, J. (1934), The Theory of Economic Development, Duncker & Humblot, Leipzig. Trans. R. Opie (1934), Cambridge, MA: Harvard University Press. Shefrin, H. (2012), Behavioral Finance in the Financial Crisis – Market Efficiency, Minsky, and Keynes, discussion paper available at www.russellsage.org/blog/new-research-crisisand-regulation-financial-sector. Thaler, R. and Sunstein, C. (2008), Nudge – Improving Decisions about Health, Wealth, and Happiness, Yale University Press. Worldbank, World Development Indicators, FS.AST.PRVT.GD.ZS/countries/1W?display=graph. 6  http://data.worldbank.org/indicator/  BIS central bankers’ speeches