At roughly the same time, starting in 2011, we’ve seen a substantial loosening in nonmortgage lending standards by banks, an important sign of normalization in credit markets, as Chart 12 (Standards have loosened since 2011 on non-mortgage products) suggests. Perhaps not surprisingly, mortgage standards have only in recent quarters begun very slowly to reverse the significant tightening that followed the housing bust; see Chart 13 (Banks and Lenders Imposed Tighter Mortgage Lending Standards, 2nd half). Broad increases in wealth, continued recovery in the overall economy with higher levels of employment and income, a relaxation of credit standards, and historically low interest rates have led to improvements in delinquency rates and increases in both demand and supply for borrowing by U.S. households. In 2013, we see the consequent increase in household debt. In the last quarter of 2013, aggregate consumer debt increased by $ billion, the largest quarter-to-quarter increase since 2007. More importantly, as shown in Chart 14 (Total Debt Balance and Its Composition, in 2013 total household debt rose $ billion, marking the first four-quarter increase in outstanding debt since 2008. This is at most the beginning of a turnaround, of course: for example, once we adjust for inflation, debt per capita has just barely stopped falling, as Chart 15 (Real Household Liabilities Per Capita) suggests. BIS central bankers’ speeches  5  Further analysis based on our Consumer Credit Panel shows that the growth rates in auto and student loan borrowing have been positive for some time now.

But in many respects they highlight the inadequacies of existing regulations. The ease and cheapness of gathering, processing and disseminating information has encouraged financial innovation in a number of areas, including the development of screen-based trading systems, securitisation and the proliferation of derivative products. One of the regulatory responses to financial conglomerates is the adoption of consolidated supervision. Regulators should consider whether various businesses within a conglomerate (banking, securities, insurance, etc.) should be consolidated in an accounting sense for the purpose of calculating capital adequacy and other prudential ratios, and for assessment in general. The more general view expressed, for instance, in European financial market directives and Basle regulatory guidelines is that like activities should be treated identically for supervisory purposes, regardless of the category of institution. It is also important that bank and securities regulators co-operate at the international level. Financial innovation, e.g. derivatives trading, creates transparency problems for regulators, because of the speed and complexity of risk transformation. The appropriate response of market transparency is more extensive disclosure of financial information. But in the context of fast-moving derivatives business the difficulty is to formulate effective disclosure rules that do more than provide an outdated snapshot of risk exposures. For management of financial institutions, the main emphasis must be on internal controls. External regulators, such as the Basle Committee and IOSCO, have responded and issued detailed guidelines on risk management.