The responsibility of the banks

Yesterday, when Bank of Greece Governor Nicholas Garganas urged banks to exercise self-restraint in granting loans, he touched upon a growing social problem that threatens to become a short-fused economic bomb. The problem is the rising indebtedness of households that cannot resist the daily bombardment of television advertisements offering special deals on all kinds of loans and credit cards. It is easy to blame individual consumers who borrow beyond their means, sacrificing the future on the altar of the present. Similar, sensible recommendations certainly have their place in a discussion among friends or family, but they mean nothing when it comes to the national economy. The aggressive campaign by the banks in pursuit of the maximum possible number of borrowers, baiting them with loans that are advantageous in the short term, is leading inevitably to overindebted households. The problem is not only ethical and social, with many households risking bankruptcy having resorted – whether unthinkingly or due to need – to the easy solution of taking out loans. It is primarily a major economic problem. As Garganas noted, feverish competition leads banks to reward those who fail to make their repayments and punish those who make their payments by raising interest rates to cover unavoidable losses. Banks risk falling victim to their own aggressive tactics. By recycling existing household debts through special offers of the «all-in-one» type, they continually put the problem off, only to find it facing them again later in even greater dimensions. Banks themselves incur the most damage from extended household bankruptcies. This fear is no abstract danger, and is being intensified by rising interest rates in the European Union which piles further burdens on borrowers. Bank loans, whether investment or consumer, can play a significant part in expanding economic activity, especially in lean times such as these. But every medicine can become a poison if used wrongly. Let us hope that Garganas’s counsel of stricter terms and clear lending rules is heeded.