Financial crises often preceded by excessive indebtedness in the economy

Abstract

Financial crises cause substantial costs to society. The costs from losses in output often prove to be higher than the subsidies granted to financial institutions. To ensure financial stability, it is important to identify in good time the risk factors that, if realised, could lead to a financial crisis. History shows that financial crises have often been preceded by a protracted rise in indebtedness. This highlights the importance of indicators of excessive indebtedness.