The reversal of bank lending is staggering.

That generally transfers the deposits from the lending bank to another bank.

Now European countries finance 42 of IMF lending and 62 of concessional World Bank lending.

First, most international bank lending was very short term.

Bank regulation, like lending, was once decentralized and judgment based.

The ECB s easing of credit is effectively subsidizing bank lending.

Short term bank lending from abroad is unstable and therefore dangerous

Short term inter bank loans are seemingly less risky than long term lending.

And much of World Bank project lending can be done by the private sector.

The effect was especially pronounced in lending to non financial companies, whereas lending to households an area with traditionally lower internationalization remained more robust.

The breakdown of cross border bank lending thus represented a powerful negative shock for them.

The G 20 should also increase the lending capacity of the World Bank, the African Development Bank, and other international financial institutions.

Indeed, US legislation strictly forbids the Fed from lending to non depository institutions, except in emergencies.

These regulations seem to make sense for an individual bank. Short term inter bank loans are seemingly less risky than long term lending.

The fit would be particularly good in those countries where the Bank is already lending money.

Bank subsidiaries will increasingly have to finance local lending with local deposits and other local funding.

Simply put, more liquidity will not lead to more active bank lending until there is more transparency regarding the extent of non performing loans and the relevant economies have become more flexible.

Bank regulators should just say no to such lending by institutions that are already under their purview.

That made sense only if the bank used the reserves to back up expanded lending and deposits.

Second, the financial system both banks and non bank institutions is severely damaged.

Depositors with the British bank Northern Rock blame American developments for the credit turbulence that made it impossible for the bank to continue to fund its lending.

They could also serve to increase the EU s lending capacity beyond the current mandates of the European Investment Bank and the European Bank for Reconstruction and Development.

Still, the Jubilee campaign's street protests began a healthy debate about the lending arrangements of the IMF World Bank.

As a result, compared to the regional development banks, the Bank will be lending less to fee paying clients, who provide income, and engaging in more concessional lending, which does not.

All these non bank institutions are now potentially at risk of a liquidity run.

Trading volumes are down, as is bank lending, and there have been major layoffs in financial centers around the globe.

Trading volumes are down, as is bank lending, and there have been major layoffs in financial centers around the globe.

Bank lending and regulation, by contrast, must incorporate local knowledge, because, in a dynamic, unregimented economy, each borrower, loan, and bank is different (though some general guidelines can help).

Lending in the Dark

The IMF s Lending Overhaul

At the start of Koizumi s government, 8.4 of bank loans in Japan were non performing.

Still, this is the time for bank regulators in the U.S. to keep a close watch on bank portfolios, just to make sure that the current euphoria does not turn into a mountain of reckless bank lending.

Bank lending to sovereign borrowers has been a double disaster, fostering over indebtedness, especially in countries with irresponsible or corrupt governments.

But, while bank profitability and bonuses have returned, lending has not recovered, despite record low long and short term interest rates.

The interest rate policy of the Central Bank does not influence market rates, it influences only the rates of interbank lending.

Perhaps the country lending activities of the World Bank should be almost completely eliminated, with the private sector, and the regional development banks such as the Asian Development Bank and Inter American Development Bank, picking up the slack.

While lending is progressively thinned out and retained only for the poorest countries, the Bank must adopt the lean hub and spoke structure of a strategic consultancy or a knowledge bank.

The major concern, however, is evidence of a growing volume of non performing loans. The Bank of Communications performance suggests that China s lending boom of 2003 and 2004 could lead to another wave of defaults this year and next.

Vnesheconombank (VEB) () is a Russian state corporation (a non profit) that is a former Soviet bank.

Following years of mismanagement and reckless lending, the bank was the first big victim of the commercial property market s decline in 1990.

Second, China s central bank still controls interest rates by enforcing a roughly three percentage point spread between deposit rates and lending rates.

These borrowings caused a surge in non performing bank loans in the early and mid 1990 s, when total non performing loans hit 40 of GDP.

During Japan s lost decade, the Bank of Japan mostly bought Japanese government bonds, whereas the Fed is trying to reopen secondary markets for securitized private lending (which in the US is as important as bank lending), buying mortgage backed securities and consumer and business loans, as well as U.S. Treasury bonds.

STOCKHOLM The idea of a bad bank appears to grow more popular by the day in countries where toxic assets have paralyzed lending.

Countries should limit their exposure to short term international bank loans so that they are less vulnerable to wild swings of international lending.