Here are the countries showing early warning signs for banking crises

Asia, China, Brazil and even Switzerland have problems and need watching.

Not again... Reuters/Kai Pfaffenbach

By Max Nisen
29 June 2014

The central bank for Central Banks just sent out a warning that markets have gotten excessively euphoric in spite of some worrying fundamentals.

The red flag comes from the Bank of International Settlements annual report on the state of the world’s economy. The report, which was released today, acknowledges that the global economy is broadly improving, with most of the world returning to solid growth. But is also includes (PDF) an analysis of which countries and regions have the most worrisome early warning indicators for a domestic banking crisis. The indicators aren’t a surefire way to predict a crisis, but have been fairly reliable in the past.

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.

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