If banks do not make new loans, this impedes the entry of new players into liberalised sectors, which then reduces competitive pressures and price adjustments. And if banks do not write off loans to insolvent debtors, in particular “zombie” companies, this slows down the necessary reallocation of resources toward exports and higher-productivity sectors.
In other words, cleaning up bank balance sheets and ensuring a well-functioning bank lending channel is an equally important part of the adjustment process. This is the second challenge for growth. 4  BIS central bankers’ speeches  The authorities in Greece have taken important steps to preserve the stability of the banking sector.