Consistent with the results of the SLOOS, C&I lending has indeed been rising sharply lately. Banks have focused on C&I lending because business borrowers’ creditworthiness is improving and because the majority of C&I loans carry floating interest rates that reduce interest rate risk. In addition, domestic banks reportedly are picking up customers as a result of a pullback by some European institutions.
It is not a new dilemma, but in the context of the euro it takes on an unprecedented connotation which merits closer attention. Let’s start with the relationship between the national fiscal authorities and the European authorities. It’s relevant to consider the case of a country that is solvent – i.e.