Euro area: is bank lending becoming a problem?

The ECB’s latest Bank Lending S urvey show ed a significant tightening of credit standards by euro area banks throughout the second half of last year . The obvious question to ask in this context is whether this poses an additional risk to the economy that may prevent an upswing once the current lockdown measures are lifted ? Our answer is “ no ” for two reasons. First, credit conditions remain much more favourable than during the financial crisis. More importantly, demand for bank loans – after a surge in Q2:2020 – will now adjust sharply downwards, in line with the overall macro picture. This is making a tightening of lending standards less problematic.