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Regulators Snub Sign That May Predict Next Crisis, BIS Says

Regulators may be overlooking a signal that could give them an opportunity to identify a new financial crisis, according to the Bank for International Settlements.

By focusing only on the gap between the size of an economy and the amount of bank credit within it, policy makers are ignoring contributions that foreign and non-bank lenders make to credit booms that typically precede systemic banking crises, according to Mathias Drehmann, a senior economist at the Basel-based institution. That role can be “significant,” as shown by a new BIS database that shows domestic banks currently supply only 30 percent of credit in the U.S. economy.