You see, if an economy is facing a debt crisis as a result of a credit-financed bubble bursting, the value of the assets held by the private sector fall, while the value of the liabilities remains the same. Households and enterprises are compelled to increase their saving in order to pay off their debts.
However, saving more to reduce debt leads to a decline in investment, which has a negative impact on economic growth. As I have already mentioned, bank balance sheets mirror the real sector. As a result of the developments I have just described, banks, too, may also run into difficulties, however.