Yet at first glance, the conditions in which the banks are operating would appear to be perfect. After all, the European Central Bank (ECB) is – in return for the appropriate collateral – lending them unlimited amounts of money. The cost: 0%.
And if the banks lend heavily to enterprises and households as well, they even receive a premium on the funds borrowed from the ECB. Just to remind you, up until a few years ago, policy rates were much higher, and far tighter restrictions were placed on money borrowed from the ECB.