I read an interesting post here yesterday (or was it the day before?) about "forcing banks to lend" and am curious to see if anyone has a similar feeling to myself.
As we all know, any well run bank will (or should) study the risk before lending, look at the return, and then take a decision.
With the current "crisis" many central banks have dropped rates to try and kick-start the overall lending process agaain... but "Have we got it all wrong?"
I ask the question because when talking to a client bank recently, one of the senior staff commented that with rates now so low, they were in some ways less inclined to lend. The basic gist of the argument was if I can lend at 5% or 6% I might take the
risk, but if I'm only going to get 2%, why take the chance.
I realise the argument has many flaws, but the underlying logic does beg some questions.