I hear from treasury peers that the credit market is returning gradually. That is comforting but we are still far from the credit expansion bonanza that ended 2007/08. JP Morgan has a very well written paper on the reasons behind the crisis from where I have borrowed (and revised) this picture.
Prior to the Basel Accord the banks did basically all lending to corporates and individuals. Boosted by Reaganomics and the Basel Accord the second engine (in the picture "bond market" and "securitization") took over the lion share of the lending. The purpose of the second engine was to support credit expansion and create a protective shield for the banks.
Now the second engine is working at reduced capacity and regardless if the banks increase lending there remains a huge credit gap. This picture made me understand how vast the financial collapse actually is and that it will take a long time to return to status quo. I believe this picture also shows that high leverage will probably not be the strategy for the imminent future.
1 comments:
Rather interesting place you've got here. Thanx for it. I like such themes and anything connected to this matter. I definitely want to read more on that blog soon.
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