Thursday, 13 October 2011

Zombie borrowers and/or zombie banks?

According to those news (in Icelandic) the economy is shoulders-deep in a balance sheet recession. Apparently, the economy also seems to be under the influences of zombie-banking at the same time.

Koo (Holy Grail of Macroeconomics) showed how the demand for loans was the main reason for the lost decade in Japan. He also made the case that the same problem had been prominent during The Great Depression in US and in Germany during 2000-2005. Other notable economists, such as Roubini, have also mentioned this.

Rough translation of the news is:

"Birna Einarsdottir, CEO of Islandsbanki, says that low demand for loans is the main reason for low growth of credit within the financial system. This was one of the points the made during a financial conference organised by the Islandsbanki.

Birna said that the loan-and-risk committee of Islandsbanki had agreed on the lion's share of loan applications they had received in 2011. About 74% of applications were agreed upon immediately but only 3% denied downright. Birna also said that those figures were a testament of firms adopting to higher standards set up by banks.

Loan applications in 2011 mirror the state of the economy according to Birna."

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