What Bankers Are Really Worried About
Regulation isn’t the only impediment to lending during a crisis. The banks are possibly even more worried about looking weak to their investors.
Easy money?
Photographer: Thomas Lohnes/Getty Images EuropeEurope’s banks have often complained about too much regulation hampering their ability to lend. The Covid-19 epidemic shows that when times are bad the real constraint lies elsewhere: in the financial markets.
The European Central Bank has gone to great lengths during the coronavirus crisis to ensure that lenders can keep pumping credit into the economy. It immediately provided flexibility on the treatment of non-performing loans, and allowed banks to make full use of capital and liquidity buffers that were put in place to keep the financial system safe after the 2008 crisis. This relaxation of the rules is to ensure that bankers don’t cut off their customers’ credit lines because of the fear of having to raise new equity. The inevitable risk is that the ECB encourages a dangerous new buildup of bad loans.