BIS Review 64/1997  -2-  Without an effective market clearing mechanism, the consequences of such a paradigm, as one might readily anticipate, were both huge surpluses of goods which, while produced, were not wanted by the populace, and huge shortages of products that consumers desired but were not produced in adequate quantities.
This has had a negative impact on the banks’ access to funding and reinforced the tendency for banks to reduce their lending. Since lower lending volumes may further curb economic activity, the economic challenges become even greater. In the short term, the banking union represents an attempt to break the negative interaction between governments and banks.