‘ECB policy increases the risk of a credit crunch’

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‘ECB policy increases the risk of a credit crunch’

Since the turmoil in the financial markets, the risk of a so-called credit crunch has increased considerably. In a credit crunch, banks’ lending to private individuals and entrepreneurs comes to a halt. According to BNR’s house economist Han de Jong, there is ‘no reason to panic yet, but the central banks must be alert to this’.

At the moment, according to De Jong, there is no question of such a credit crunch. But it is clear that banks are more cautious. ‘Banks set conditions for the loans they provide, and those rules become stricter from time to time,’ explains De Jong.

‘The European Central Bank conducts a quarterly survey among banks about the prevailing credit conditions. In the last survey from a few weeks ago, banks said that the conditions are already being tightened.’

This indicates that banks are increasingly assessing the risks. ‘That is the bankers’ perception,’ says De Jong. ‘This makes lending a lot more difficult. And if it stops, activity will also collapse.’

recession

According to De Jong, bankers are mainly anticipating the approaching recession. “We talked about that a lot in the second half of last year,” he says. ‘In a recession, companies do less well and some go bankrupt. Banks often anticipate this and tighten credit conditions.’

“If lending stops, then activity will also collapse.” ‘

Han de Jong, BNR’s house economist

As a result, companies are less likely to turn to banks for working capital or money for investments. ‘Then the activities have to be reduced to a lower level or even have to stop,’ he explains. ‘But that problem also affects families. If they no longer receive credit from banks for the purchase of a home, then the housing market will also end.’

Not new

However, a credit crunch is not new. In the past two decades, there have been two periods in which credit conditions have been adjusted more sharply than at present. The ECB has anticipated this by lowering interest rates, says De Jong. ‘But that is not the case now due to the high inflation. The central banks are in the process of raising interest rates. That increases the risk of a credit crunch,’ thinks De Jong.

Since the turmoil in the financial markets, the risk of a so-called credit crunch has increased considerably. (ANP / Richard Brocken)

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