Post-Subprime World Still Unbalanced

Abstract

The sharp rebound in the global financial markets in 2009 seemed to herald an end to the western banking crisis and the start of an economic recovery. Not really. This is because the developed world’s banking system is not just suffering from a temporary breakdown of the inter-bank market and a transitory fall in asset values. It is seriously impaired, and the damage will hinder the post-crisis recovery process. Even a recovery in capital markets activity may not help the post-subprime recovery much, because the benefits of stabilising financial conditions are not being distributed evenly. That is why banking lending has remained depressed and the money multipliers in the developed world have remained broken, despite improvement in the financial environment.