The central bank for central banks warned about “euphoric” markets. The Bank of International Settlements said central banks have been lured into a false sense of security and warned of signs of banking crises on the horizon.
Here are the countries showing early warning signs for banking crises (Asia, Turkey, Switzerland Brasil)
History shows that when the difference between a country or region’s credit-to-GDP ratio and the long-term trends of that ratio exceeds 10%, it indicates a pretty rapid accumulation of debt and is usually followed by serious strain on a banking system within 3 years. When residential property prices start rising above their long term trends, that often points to a credit boom and comes two to three years ahead of a crisis. And all it would take is a 250 basis points increase in short term money market rates to push debt servicing ratios in many booming economies upward. These ratios tend to rise rapidly a year or two before a crisis.