6 Finally, nonbank distress can transmit to the banking sector through many channels, such as counterparty relationships, disruptions in funding markets, and knock-on effects of asset fire sales. The failure of Lehman provides a good example. It was a nonbank, and its failure both imposed direct losses on its many types of counterparties and disrupted many markets with negative effects on banks.
More generally, countries that could use fiscal space, won’t; and many that would use it, shouldn’t. That leaves us with structural reforms. Some, like upgrading education and judicial efficiency, are important but take a long time to implement and to produce results. The structural reforms economists often have in mind (i.e.