Uncertainty about the current loan book and the exact losses that will crystallise (and therefore consume capital) are likely a factor in constraining lending. Absent an exercise of even further recapitalisation, the best option is more specificity and understanding of the performance of the legacy loan portfolios – and an exercise in facing up to losses and modifying loans as necessary.
This assumption is based on both the rise in productivity that characterizes the era of information technology and the longstanding credibility that the Fed has acquired in its struggle to maintain price stability. In that, too, we are very different from them. 2.