It should be noted that balance sheet erosion is not limited to firms which have already gone bankrupt and the financial institutions which extended loans to them. Although not on the verge of suspending business, not a few firms misjudged demand during the bubble period and made large fixed investments or launched new businesses which turned out to be totally unprofitable.
At present, the main priority of monetary and fiscal policies in all the advanced and in many emerging countries is still to support economic recovery by compensating for the weakness of private demand and countering the effects of financial deleveraging. As a result of the crisis and the strong policy response, the public finances have deteriorated notably.