This improved credit quality in loan portfolios – together with increasing intermediation volumes – is certainly positive for banks. It has been a key factor sustaining banks’ earnings over the last year. Moreover, low longer-term interest rates increase the market value of financial assets held by banks. This, in turn, results in capital gains that further support bank profitability.
But having no discretion is also not optimal, as circumstances will always arise that the rules did not foresee. There is thus an inevitable trade-off between credibility and flexibility.