in the work of carmen reinhardt and kenneth rogoff, and in that of christina and david romer, bis central bankers ’ speeches indicating that the severity of recessions and strength of the subsequent recovery are associated with the amount of financial distress experienced in a financial crisis. 1 there is also a strong likelihood that decreased credit demand – for example, from households whose homes fell in value below what they still owed on the mortgage – also has played a part in the slow growth of credit in this expansion, as has been expressed in the work of atif mian and amir sufi. 2 nevertheless, the patterns that i have reviewed here point to an adverse impact from a relatively weak banking sector on credit supply. however, it also suggests that the recent improvement in banks ’ financial condition should provide support to credit growth going forward, which in turn would provide support to the economic growth we project over the medium term. as i noted earlier, one area where credit has flowed freely is student lending. of course, an important factor distinguishing student loans from other forms of household debt is the fact that banks are far less important players and the federal government is instead the dominant lender. but this is just one factor that makes student loans unique, and i will now ask my colleagues to provide some more details on this important and fascinating market. christina d. romer and david h. romer, “ new evidence on the impact of financial crises in advanced countries, ” nber working paper no. 21021, march 2015 ; and carmen m. reinhart and kenneth s. rogoff, this time is different : eight centuries of financial folly, princeton, nj : princeton university press, 2009. atif mian and amir sufi, house of debt : how they ( and you ) caused the great recession, and how we can prevent it from happening again, university of chicago press, 2014 ; and a number of scholarly articles. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

housing boom, limits on subprime lending would undoubtedly have provoked the objection that the regulators ’ actions would limit home ownership for low - and moderate - income families. imposing automatic, countercyclical standards also has this difficulty to some degree. but i think it is much less severe because at the time such standards are put in place, they generally will not be binding and it will be unclear whether they will necessarily become either more stringent or more binding in the future. in other words, the rule ’ s potential impact will be highly speculative and uncertain at the time of implementation. this may lessen the political opposition to putting such a rule in place. in the same vein, automatic rules that are imposed ex ante might also be less risky in terms of potential unintended consequences. when new rules are implemented it is always hard to gauge what the impact will be because imposition of the rule not only changes the economics of borrowing and investing in a particular sector, but also changes expectations about what might happen in the future. when the rule is viewed as likely to be binding in the future – this seems more likely in the case of the ex post measures – it will be very hard to judge how economic agents will respond to a new measure. in this regard, i think back to the carter administration and the imposition of credit controls to restrain inflation in 1980. even though the credit controls were not expected to bind right bis central bankers ’ speeches away, the economy began to contract almost immediately as households and businesses rapidly adjusted their behavior to preserve some credit capacity. the response was a much more powerful downturn in economic activity than had been anticipated, which forced the carter administration to scrap the credit controls because they worked too well in restraining economic activity. so i see some potential advantages of hardwired rules. but, i think this advantage needs to be set against the practical difficulty of figuring out what rules would need to be in place now to deal with all the potential financial stability excesses that could occur in the future. that seems a very difficult task to work out in my opinion. it implies that such rules would need to be designed to treat broad issues, such as increases in financial system leverage or aggregate credit growth, rather than more limited sectoral issues. this may work well in some circumstances in which the financial excess is occurring broadly, but might not be very effective when the problem, while extreme, may be more narrowly based. historical experience suggests that past bubbles in the united states that