But it is worth noting that the recovery could well turn out bumpy, and if future developments inhibit a strong recovery, bank provisions may turn out to be insufficiently conservative.
That could risk creating a negative chain of events, through rising defaults, greater deterioration in asset quality, a restricted flow of credit to the real economy, and destabilising feedback loops between banks, sovereigns and corporates. In all cases, the apparent decoupling of asset quality trends from economic developments can mainly be explained by the unprecedented policy support provided to the economy.