Even though at this stage of the recovery the supply-side is not the major cause of the continued weak lending data but the weak demand, nevertheless, two key priorities ought to be addressed on the supply-side. The first priority is to support the bank lending channel by strengthening banks – that is, by cleaning up their balance sheets and reducing fragmentation in funding markets.
I am confident that banking union will help achieve this, not least through its comprehensive assessment of banks’ balance sheets. The second priority is to support the bank lending channel by strengthening capital markets. As disintermediation is not an option for most euro area SMEs, a promising middle way is to increase possibilities for the securitisation of SME loans.