Forex Flash: Banking system remains central to Spain’s restructuring – Goldman Sachs

FXstreet.com (Barcelona) - While progress is underway, the Spanish economy still needs a significant economic restructuring. According to the Economics Research Team at Goldman Sachs, “The reallocation of capital – from unhealthy sectors such as construction to those sectors with better prospects of expansion such as exports – is a necessary part of that restructuring. Given the nature of the Spanish financial system, banks have a central role to play in this process.”

Bank balance sheets have shrunk since the onset of the crisis, along with a sharp fall in bank lending. Yet a ‘net’ shrinking of balance sheets and lending can be achieved through different combinations of rollovers of existing loans and the provision of new loans.

Given the necessary economic restructuring, a willingness to call in existing loans to unviable businesses and extend new credit creation to businesses with better growth prospects is important. This is how the reallocation of capital contributes to the required economic restructuring.