Refile rapid rise in private sector borrowing bad for growth oecd

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(Removes extraneous word from headline)LONDON, June 17 Rich countries are at risk of long-term economic damage if lending to households and businesses grows faster than the economy as a whole, the Organisation for Economic Co-operation and Development (OECD) said on Wednesday. The international think-tank said growth in borrowing as a share of the economy brought short-term economic gains but longer-term harm through looser financial regulation, lower credit quality and bank bailouts by the public sector."Over the past 50 years, credit by banks and other intermediaries to households and businesses has grown three times as fast as economic activity. In most OECD countries, further expansion is likely to slow rather than to boost growth," the report said. Increases in household borrowing were the most dangerous, while big rises in corporate bond issuance and bank lending to businesses caused less harm.

Overall, if borrowing's share of the economy rose by 10 percentage points, this tended to reduce long-term economic growth by 0.3 percent, the OECD said. By contrast, rapid increases in stock market capitalisation were linked to modestly faster growth, the OECD said.

The OECD also said that rapid growth in borrowing tended to worsen inequality. Rich people were better placed to borrow to fund investments, and excessive pay in the financial sector also worsened inequality, the report said. The findings chime with an International Monetary Fund report last month. The authors of the IMF report argued that "too much finance" beyond a certain level of financial development was linked to economic and financial volatility.

Since the financial crisis most countries have sought to toughen bank regulation to ensure they do not need to rely on bailouts in a future economic crisis. In 2013, Bank of England Governor Mark Carney said the prospect of Britain's financial sector growing rapidly as it serviced the global economy was not one which should be regarded "with horror". The OECD said macroprudential measures to control lending, reforming too-big-to-fail institutions and tax changes should help to improve the financial sector's contribution to growth.