Households' indebtedness and financial fragility

The paper studies the determinants of international differences in household indebtedness, and inquires whether indebtedness is associated with increased fragility, as measured by the sensitivity of household arrears and insolvencies to macroeconomic shocks. It also investigates whether financial fragility is affected by institutional factors, such as information sharing arrangements, judicial efficiency and individual bankruptcy regulation. We address these issues by tapping three data sets: (i) cross-country data on household indebtedness; (ii) European panel data for household lending and arrears; and (iii) time series data for household lending and insolvencies in the U.K., the U.S.A. and Germany. Overall, the analysis underscores the importance of institutional arrangements in determining the size and fragility of household credit markets.