The reason is that without coordination the recovery will not start and the lender who took the solitary initiative will pay all the costs of running a large balance sheet in a still recessionary environment: a credit crunch could emerge as a suboptimal Nash equilibrium.
In this case, MAP policy could facilitate coordination among lenders to bring the crunch to an end and make the banking sector sounder.23 These stories are all possible and credible. Any policy prescription should be based on a discussion of which of them we believe to be most plausible.