“The ratio of non-performing loans (NPL) was 5.5%, 10bps below Q1 2016. Notwithstanding the improvement, credit quality and the level of legacy assets remain a concern.” writes the European Banking Authority (EBA) in its risk dashboard update of September 30. The idea that central banks trying to rescue the world from Professor Laurence Summers’ “secular stagnation” are indeed creating more problems than the ones that are trying to solve (for lack of fiscal policy’s intervention, if any) is gaining momentum. The Economist, a newspaper, covers the subject in this issue.
The financial system broke down eight years ago. And hasn’t been fixed up, yet. The Americans, and the British, have acted as if by shrugging off the problems the effects the crisis created might actually contribute to heal them. Yet, the chronic resurfacing of the malaise suggests the underlying causes are still there underneath. As the EBA indicates banks’ capital requirements are the focus of regulators (the cause, where the crisis came from) and monetary policy has creatively eased its stance to the point low interest rates are now starting to be considered the (the cause, where stagnation comes from) reason why demand lags behind. This argument is rather confusing in the academic world as economists try to argue that regulation and monetary policy are now opposing each other.
Two causes and no effect are rather misleading if not confusing: government policy should be the one effect being drawn into the game by regulators and central banks’ policy makers. Though governments aren’t keen to play the game.