At least some of this reflects the poor creditworthiness in present market conditions of many loan applicants. The difficulty is that second-guessing banks on their credit appraisal decisions and on their pricing of credit risk is, under present circumstances, fraught with threats to the Exchequer, which will largely absorb any additional credit losses incurred by the banks.
As an undergraduate student, I was privileged to be in the audience for the Dornbusch lecture and was immensely impressed by his erudition, clarity of expression and expertise: he was a role model for anyone interested in applied macroeconomics. I will return to the topic of the Dornbusch lecture – European monetary integration – later in this lecture.