April 14, 2021

The temptation of the loan | Economy

The temptation of the loan | Economy

In recent months citizens are being bombarded by all means (emails, phone calls, ATMs) with surprising offers of money. Pre-approved, fast and immediate loans or postponements of receipts in several installments. It seems that banks do not know what to do with money.

This change of roles is suspect. It is no longer the individual who goes to a financial institution to request a loan that requires certain conditions. Now the bank has more need to lend money than the citizen to request it.

This unusual behavior of the financial sector has several effects. In the first place, the citizen is faced with the difficult temptation to get into debt without any real need. You have to consider that it's about very expensive loans in the European context. In June 2018, the average rate of consumer loans in Spain was 7.8% compared to 4.9% in the euro zone, according to the supervisor. Such a bulky difference is difficult to justify in a monetary union in which all banks are governed by the same official money price, currently at 0%, and Euribor, which is in negative rates.

These price differences explain the strong growth in consumer credit. Between 2015 and 2018 this segment of credit increased by 40% and that destined to the acquisition of durable goods, by 70%. However, the total volume of credit continues to fall steadily since 2010, to 1.2 trillion euros last September. Likewise, the amount earmarked for productive activities is continuously reduced since 2008, to 549,891 million. On the contrary, consumer credit has continued to grow to a record of 85,921 million. This disparate credit behavior offers a disquieting image of the economic growth model.

Secondly, it is an offer of money, not consumer goods such as cars, washing machines or other products. Banks offer money that is not theirs and that they are only administrators of. So many facilities are surprising if we remember the origins of the last crisis. The report of the National Commission on the financial crisis in the United States highlights "the failure of the Federal Reserve and other regulators to control the irresponsible loan." The so-called Liikanen report on banking in the EU also recognizes that "the financial crisis was caused, at least in part, by irresponsible lending practices". Although lately the credit approval criteria have "hardened slightly", according to the supervisor, the money supply is still at its peak.

The Bank of Spain has indicated that "very rapid growth of credit is always associated, sooner or later, with increases in risk and delinquency, which should lead the entities to analyze carefully the sustainability of said credit increase rates and their fit in the desired risk profile ". A very inadequate warning for the times.


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