Tuesday, December 24, 2013

24/12/2013: Should Government Do More on Credit Supply? Or Do Better?

We commonly hear about the need for the Government to do something about 'credit supply' to the real economy and 'fixing the bad loans' problem in the banks. Alas, as per the IMF assessment shown in the chart below, Ireland is already well ahead of the majority of its euro area counterparts (save Spain and Slovenia) in terms of policies aimed at supporting supply of credit. And we are way ahead of everyone else in terms of policies that are designed to address the issue of bad loans.

Given having policies ≠ having effective policies or allowing policies on the books to be implemented in the real world. So may be the Government shouldn't be 'doing more' to fix credit supply and demand, but instead 'do better'?

Note: Policies aimed at enhancing credit supply include: fiscal programmes on credit (e.g. credit support schemes, etc), supportive financial regulation, capital markets measures (e.g. funding via state agencies etc), and bank restructuring (that the IMF and the Irish Government often confuse for repairing). Supporting credit demand policies include policies aimed at facilitating corporate debt restructuring and household debt restructuring.

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