Policy makers are concerned that banks are not providing enough liquidity to the economy. Many banks are having difficulty with this because of the simple business reason that their costs have gone up but their revenues have gone down. For many, especially in the Eurozone, their cost of capital is higher than their return on equity. Improving balance sheets comes at the cost of discouraging credit growth – there is no free lunch.
About the authors
Economist Insights is written by Joshua McCallum and Gianluca Moretti. Joshua has been working at Global Asset Management with the title of Senior Fixed Income Economist since 2005. Prior to this, he worked at the UK Treasury as a macroeconomist. Gianluca joined Global Asset Management in 2010. Prior to this he worked at the Italian central bank.
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