Credit cycle

The longer swing in the willingness of lenders to lend and of borrowers to borrow, which drives the business cycle rather than merely accompanying it.

Its shape is consistent. Losses fall, so lenders relax standards, so credit grows, so asset prices rise, which appears to validate the lending. Then losses appear from the loans written at the loosest point, standards tighten, credit contracts, and asset prices fall.

The loans that default were written three years earlier, which is why bank credit costs are lowest exactly when the risk being taken is highest.

Judge a lender by what it wrote in the boom.