Europe has been postponing the recapitalisation of its banking sector. This column argues that it has been doing so for far too long. Without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks.VOX.eu
The urgent need to recapitalise Europe’s banks
Harald Benink, Professor of Banking and Finance and Fellow of the Centre for Economic Research (CentER), Tilburg University, and Harry Huizinga, Professor of International Economics in the Department of Economics, Tilburg University and CEPR Research Fellow
Nice idea. Unfortunately banksters fund politicians and pay them NOT TO enforce better capitalisation.
ReplyDeleteAnd the irony is that as Messers Miller and Modigliani pointed out, better capitalisation does not increase banks’ funding costs. But banksters and politicians are far too dumb to see that.
Even more ironically, capitalisation of British mutual building societies (roughly equivalent to US Savings and Loan) is IMMEASURABLY superior to any bank: in fact ALL THE CREDITORS of those societies are loss absorbers. I.e. capitalisation is 100%. But those societies compete very effectively with banks, and not a single one of them has ever gone bust or broken the buck.
The ignorance and idiocy of Frank-Dodd, the Basel regulators etc etc is truly awesome.
This is interesting because as we know, banks don't "lend out the reserves...", but this article asserts, banks would "lend out the capital"... or perhaps better, if banks were 'recapitalized', they would naturally somehow start making more loans...
ReplyDeleteThis would be interesting to see as I believe they would NOT.
Unless the govt at the same time increased substantially the rate at which they were injecting NFA into the non-govt sector, ie the leading NFA flows and this is not necessarily 'the deficit', bank lending would not increase substantially if at all...
rsp,
For a bank to lend money there need to happen two things: 1) someone who want credit to actually go to a bank and demand credit; 2) that the bank actually considers him "credit-worthy" to lend to him (paging F.Beard lol).
ReplyDeleteBanks may not be in best state and we may have some zombis dragging the economy a bit like Japan had for decades, but that's not the problem. The main problem is that there is a shortage of '1' and '2' in Europe right now, specially in the most ill economies.
I have to listen to idiot politicians all days talking about how 'credit must return', and we need the fairy of confidence to return for 'credit to grow', etc. yet they fail to realize that banks are not going to lend to households with diminishing income and in danger of losing their jobs, or the business that employ them because there is no actual demand and which are on verge of bankruptcy, not even these which look solid but have cash flow and liquidity problems because (wait for it), the damn public institutions are not paying in time what they owe!
Maybe you should fix that before caring so much about the financial system, a financial system which is not going to lend anyway because, the economy does not guarantee returns lol.