The steady growth in household borrowing in the UK, US and most other OECD countries since the 1990s has automatically boosted banks’ measured contribution to GDP, through the rising flow of interest payments they collect from households. The increasingly hazardous nature of lending to subprime and already indebted households further boosted this measured contribution, since it resulted in a higher premium of borrowers’ rates over the reference rate with inadequate adjustment for the increased risks.
