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.

Some commercial banking activities are closer to securities trading.

The best case against Glass Steagall s repeal is not that mixing investment and commercial banking caused the crisis.

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.

Both started as NGOs (following the Grameen model) and received millions in grant money from development institutions to start lending operations. They also got access to low cost lending from government banks and multilateral institutions such as the International Finance Corporation (the World Bank s commercial lending arm) and the US Agency for International Development.

Second, repeal of the Glass Steagall Act, which separated commercial and investment banking, was a mistake.

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.

With the commercial lending rate at a high of 18 , bank credit to the franc zone s private sector has dropped to 12.7 of GDP, compared to 36.5 in Sub Saharan Africa and 78.9 in South Africa, the region s leading economy.

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.

The Glass Steagall separation of commercial and investment banking simply validated a transition that was already underway.

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.

The three leading Democratic candidates disagree, however, on whether there should be legislation to re erect a wall between the rather dull business of ordinary commercial banking and other kinds of finance (such as issuing and trading securities, commonly known as investment banking).

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.

The irony is that Congress took up the big banks offer to separate commercial and investment banking, but then enacted deposit insurance anyway.

The Glass Steagall Act s separation of investment from commercial banking greatly benefited the established oligarchy of investment banks, but somehow the entry of competitors from commercial banks and insurers increased financial companies profits further.

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.

You wouldn t expect this to work in your shower, and there is little reason to expect it to work in the commercial lending market.

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.

France has a veto within the boards of directors of the Franc Zone s two central banks, while two French commercial banks, BNP Paribas and Société Générale, exercise a quasi monopoly on lending programs, mainly centered on short term trade financing and the needs of governments, public and private companies, and the elite.

(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.

The idea of the larger bank reached its high point in continental Europe, and especially in Germany, whose big banking system developed out of trade finance and into industrial finance in the late nineteenth century.

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