measure ). the story thus far while there are pockets of risk and global growth is still decelerating, the combination of the policy response and the state of the current imbalances in advanced economies suggest that global growth is more likely than not to stabilise eventually around its new, modest trend. but this is a judgement, not a guarantee. the world is in a delicate equilibrium. productivity is weak everywhere. the sustainability of debt burdens depends on interest rates remaining low and global trade remaining open. and business and consumer confidence are being buffeted by extreme policy uncertainty. indeed, there are at least three important risks on the horizon. first, financial risks will intensify if complacency sets in. paradoxically a prolongation of the expansion could make its demise both more likely and more painful. the frequency of financial crises over history is partly because memories fade, financial lobbies are powerful, and the costs of backsliding on financial reform are invisible, at first. when it comes to financial stability, success is an orphan. g20 countries bear heavy responsibilities to safeguard the progress since the crisis through disciplined implementation of agreed reforms. and policymakers must remain vigilant and address new risks as they arise. the lessons of subprime bear recalling. subprime mortgages emerged in the mid - 1990s as an innovation to expand home ownership to those who had been unfairly excluded. but they eventually grew unchecked until subprime mortgages written in 2006 and 2007 were twice as likely to default as those originated just a few years earlier. it is just such a descent from responsible to reckless underwriting that we must avoid today. that ’ s why the fpc has acted to limit the share of high loan - to - income mortgages uk banks can originate, the pra has tightened standards on consumer credit and the bank is monitoring closely the growth in leveraged lending. all speeches are available online at www. bankofengland. co. uk / speeches the second reason for caution is the possibility of a more material slowdown in china. china is the one major economy in which all major financial imbalances have materially worsened. it may be the exception that proves the rule that financial imbalances cause recessions. while china ’ s economic miracle over the past three decades has been extraordinary, its post - crisis performance has relied increasingly on one of the largest and longest running credit booms ever, with an associated explosion of shadow banking.

elsewhere finds that private sector credit growth is amongst the best early warning indicators of a downturn. 14 over half of recessions are preceded by private sector credit booms. and within advanced economies, two - thirds of private credit booms have also ended in recessions. 15 as borrowers take on more debt and devote a greater share of cash flows to servicing it, they become more vulnerable to shocks. and there will always be shocks. debt may not be the proximate cause of the crisis, but it can be the vulnerability that turns shock into slump. at present, aggregate private financial imbalances in advanced economies do not appear large enough, on their own, to tip global activity from slowing to stalling. private sector credit growth has averaged less than 3 % in the uk, us and the euro area over the past decade, generally less than nominal gdp growth. aggregate debt servicing ratios are below historic averages, in part due to low equilibrium interest rates. although there are pockets of risk, heat maps that mechanically bring together several credit measures remain relatively cool overall ( chart 7 ) – though aggregates can hide important pockets of risk that can amplify negative shocks, and, as i ’ ll discuss, it is a different picture for china. see reinhart, c, rogoff, k, ( 2010 ), growth in a time of debt, american economic review. for example, see bridges, j, jackson, c, mcgregor, d ( 2017 ) down in the slumps : the role of credit in five decades of recessions, bank of england staff working paper n. 659 ; borio, c, drehmann, m, xia, d ( 2018 ) the financial cycle and recession risk, bis quarterly review ; taylor, a, schularick, m ( 2012 ) credit booms gone bust : monetary policy, leverage cycles, and financial crises, 1870 - 2008, american economic review ; aikman, d, bridges, j, kashyap, a, siegart, c ( 2018 ) would macroprudential regulation have prevented the last crisis?, bank of england staff working paper n. 747. there are various definitions of a credit boom in the empirical literature – for a brief summary see gorton, g, ordonez, g ( 2019 ), good booms, bad booms, forthcoming in the journal of the european economic association. the share of recessions preceded by credit booms is