An interesting little note from Ambrose Evans Pritchard. There are two different things we’re trying to achieve at present. We’d like to have loose monetary policy, thus quantitative easing. We’d also like the banks to not fall over, thus higher capital requirements and restrictions upon lending. Yet, as we all know, 97% of wide money – credit that is – is created by the banking system itself. Thus, if we restrict the ability of banks to issue credit through capital requirements and the rest we do rather restrict our ability to have loose monetary policy through QE:
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Europe’s banks will have to raise up to €400bn (£343bn) of fresh capital or slash lending to meet the draconian demands of Basel III regulations, risking an investment crunch across the region and a second decade of economic stagnation.