The current problems in certain Asian countries show that a bad loan overhang can severely impede the functioning of the economy. Balance sheet restructuring in countries in Central and Eastern Europe may require intervention by the competent authorities in some cases. It may be necessary to let some banks fail.
The current cyclical downturn thus was - to some extent - to be expected after a prolonged period of economic expansion at a speed above potential. It is worthwhile to look into the reasons for this over performance, as they might give a clue for the subsequent downturn. Mostly, the seeds for downturns are sawn during the upturn.