Saturday, July 18, 2015

Fed: The biggest stress resulting from banks might be their misallocation of bank credit to the real economy.

Banks are not there just to make profits for their shareholders, or to be safe places where to stash away money… they are there to perform the social function of allocating as efficiently as possible bank credits to the real economy. That’s the only logical reason why taxpayers could be willing to lend them support.

In this respect any stress-test that does not include looking at assets banks have on their balance sheet from more than credit risk perspective, is an utterly incomplete test.

For instance taxpayers should be able to do know how much unsecured bank credit has gone to SMEs and entrepreneurs, and how that lending has evolved over the last 3 decades.