The problem now appears to be one of re starting bank lending.

Shadow banking in China is dominated by lending to higher risk borrowers, such as local governments, property developers, and SMEs.

The four largest banks in China account for 60 of the country s total bank lending.

Indeed, it is increasingly common for banks off balance sheet lending to exceed newly issued balance sheet credit.

In many countries, the fall in bank lending was partly offset by an increase in lending to governments, which thought that the banks should recycle society s savings directly into public sector spending.

Second, in an effort to curtail excess bank lending, reserve ratios were increased nine times in the past 11 months.

Bank regulators should just say no to such lending by institutions that are already under their purview.

Bank lending to sovereign borrowers has been a double disaster, fostering over indebtedness, especially in countries with irresponsible or corrupt governments.

In the US, there was zero growth in bank lending between 1933, the trough of the Depression, and 1937, the subsequent business cycle peak.

During the crisis, the level of banking activity fell particularly strongly in capital intensive areas such as traditional lending to the private sector.

China s leaders hope to control potential risks stemming from local government investment vehicles (LGIVs) by limiting bank lending.

So long as European banks remain undercapitalized and overleveraged, a sustainable recovery supported by robust bank lending is unlikely.

During the crisis, the level of banking activity fell particularly strongly in capital intensive areas such as traditional lending to the private sector. The effect was especially pronounced in lending to non financial companies, whereas lending to households an area with traditionally lower internationalization remained more robust.

In 2011 2012, such lending grew by 1.1 trillion, reaching 3.6 trillion (23 of total bank financing), while balance sheet lending increased by only 732 billion.

Bankers were once supposed to know every borrower, and to make case by case lending decisions.

LONDON It is generally agreed that the crisis of 2008 2009 was caused by excessive bank lending, and that the failure to recover adequately from it stems from banks refusal to lend, owing to their broken balance sheets.

In contrast to lending activities, banks commitment to foreign markets has remained virtually unaffected with respect to purely intermediary activities such as investment banking and asset management.

This situation, combined with marginal bank lending and low levels of official development assistance, undermined the efforts to meet the Millennium Development Goals.

In China, by contrast, bank lending needs to be reigned in, but regulatory efforts have been hindered by off balance sheet financing and the development of an informal quasi banking sector.

With such a swap, confidence could be restored to the banking system, and lending could be reignited with little or no cost to the taxpayer.

In just 10 years, the share of state directed bank lending in China has fallen from 92 of new credit creation to less than half.

They range from subdued bank lending to unusually high risk aversion, and from discredited credit vehicles to the withdrawal of some institutions from credit intermediation altogether.

Traditional lending and deposit taking still offers much growth potential and may become more attractive relative to investment banking or asset management as a result of new regulation.

We have already seen the liquidity intended to boost US bank lending instead leak through the cracks into markets as diverse as agricultural commodities, metals, and poor country debt.

More worryingly, Basel 3 retains, if not deepens, biases in the Basel 2 rules against bank lending to developing countries, such as for trade finance.

The Irish government that encouraged reckless bank lending and the creation of a property bubble was, perhaps not surprisingly, no more adept in managing the economy after the crisis that it was before.

(d) Consumer Lending (CLP)

Those who believe that all was fine with the pre crisis economy except for banks making crazy loans are convinced that preventing such crises in the future requires only banking reform.

The immediate causes are well known. They range from subdued bank lending to unusually high risk aversion, and from discredited credit vehicles to the withdrawal of some institutions from credit intermediation altogether.

(b) Solidarity Group Lending (SGL)

Together, these measures offer a powerful response that addresses the root causes of impaired bank lending, thereby facilitating new credit flows to the real economy. And tentative evidence suggests that they are delivering some initial tangible benefits to the euro area s economy.

In an environment dominated by direct quantitative controls, such as increasingly stringent lending quotas, shadow banking is meeting genuine market demand, with the interest rates that borrowers are willing to pay providing a useful price discovery mechanism.

In Greenspan s words, the self interest of lending institutions would protect shareholders and the economy from lending excess.

Bank lending and regulation, by contrast, must incorporate local knowledge, because, in a dynamic, unregimented economy, each borrower, loan, and bank is different (though some general guidelines can help).

First, the banking system.

Lemon Banking

Reforming Bank Reform

4320 Bank authorization

Nor do existing international lending institutions.

Lending dried up and economies started shrinking.

That was what happened in the major industrial countries in the 1930 s, where an acute crisis in 1931 1933, with some government recapitalization, was followed by a decade of contracting bank lending to private firms.

Its proximate cause was predatory bank lending, so people are naturally angry and want heads and bonuses to roll a sentiment captured by the current worldwide protests against Wall Street.

The IMF s Lending Overhaul

Celebrity Central Bankers

Europe s Bogus Banking Union