At the macro level, if supervisory policies allow banks to grow too rapidly, and then deleverage too slowly, it can also push the central bank into doing more.6 Since monetary transmission becomes impaired, the monetary “impulse” has to be strengthened compensate for the diminished “outpulse” coming out of banks.
However, the sovereign crisis spilled over to the banking system, generating a general crisis of confidence, which intensified the contraction of GDP and worsened the debt dynamics. Yet, I believe that the future now looks brighter. Why do I believe this?