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Journalism of Courage
When bank lending (credit) grows faster than the GDP over a certain period,it is a signal for central banks to tighten monetary policy,a top official of rating agency Fitch has said.
“If,over a certain period,credit grows faster than GDP,central banks should ask banks to set aside more reserves to prevent the kind of problems being witnessed now in the developed economies,” Fitch Ratings Managing Director,Financial Institutions,Asia-Pacific,David Marshall,said.
During an economic boom,central banks should raise capital adequacy norms and discourage banks from aggressive lending,Marshall said,adding that this is the single-most important lesson learnt from the financial meltdown that led to the collapse of banks in the US.
“Discouraging aggressive lending will also help prevent over-heating in the economy,” he said.
