The prospects for growth depend strictly on banks’ ability and willingness to offer the market good quality claims and to develop the entire gamut of services and specializations required. Bank managements will have to acquire the specific know-how needed for the evaluation of the complex risk-return combinations involved.
If this pro-cyclical effect is significant then monetary policy adjustments to official interest rates may need to be more vigorous, potentially in both the upturn and the downturn, to achieve the same effect on bank cost of funds, and thereby bank lending rates.