Conclusion Let me conclude. Depending on how it materialises, bank deleveraging has a potential to impede the recovery and make it more difficult for central banks to engineer an appropriate degree of monetary accommodation or, to the contrary, to support the transmission of monetary policy.
Therefore, policy-makers need to set proper incentives to promote “good” deleveraging and to steer clear of “bad” or “ugly” deleveraging. Monetary policy has a vital role to play here, notably by providing the necessary liquidity support.