Unintended Consequences of “Bank Reforms”

It seems the Central Bank has succeeded in frightening banks so much so that they are unwilling to take on any form of risks. According to sources, lending to the private sector has almost completely dried up. Proof of this can be seen in the crashing of one month deposit rates from about 12% in November to somewhere between a reported 1 to 5% currently despite the prime lending rate staying at about 18%. This seems to imply that banks have enough liquidity to lend but are not doing so. Of course if they are not lending then they cannot sustain higher returns to deposits. Money doesn’t generate returns sitting in a banks vault.

A short-term consequence of this is that capital seems to be flowing to neighboring economies with higher returns.

What do we have to do get the banks lending again? Those credit bureaus would be a start. Whatever happened to that idea?


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