Does controlling the balance sheet of banks cause recession?
According to Iran EconomistOne of the policies of the 13th government to reduce inflation in the economy is to reform the banking system by controlling the balance sheets of banks.
In the initial version, the balance sheet growth of commercial banks was considered to be 2% compared to the previous month and 2.5% for specialized banks, but after the criticism that there is no distinction between good and bad banks and that an unhealthy commercial bank has the same possibility of growing its balance sheet as a healthy commercial bank, the central bank corrected this defect. In the Central Bank’s amendment, the amount of growth of banks’ balance sheets was determined between 1.33% and 2.5%, as well as the monthly growth of the balance sheets of Qarz al-Hasaneh banks was determined at 4.5%.
“Vahid Shaghaghi Shahri”, an economic expert, in an interview with Iran is an economist Regarding the control of some balance sheets of the banks, he stated: Farzin has taken a clear plan and in this plan he is looking for economic stability.
He added: One of the plans of the governor of the central bank is to make the banking system healthy, and he has started this program. He distinguished between bad banks and bad banks, banks that can be reformed and good banks, and there are traces of this program even in the 7th development plan, and the president also mentioned this issue in the parliament.
This economic expert said: The central bank is trying to reform the banking system in order to curb inflation and remove bad and high-risk banks and reform the banks that can be reformed.
Shaghaghi Shahri added: The central bank intends to reduce the freezing of banking resources and the dissatisfaction of banks, and to create transparency and banking health in the banking network, and to help banks move forward with speed in the foreseen procedure.
He emphasized: If we implement banking health, we can hope that liquidity will decrease and the power of banks to provide facilities and finance will increase, and as a result, we will help the country’s economy.
This expert answered the question that balance sheet control causes stagnation in the economy? He said: Balance sheet control does not cause recession because the more we increase the health of banks and the transparency of balance sheets and curb the growth of liquidity in bad banks, the power of banks to provide facilities will increase.
He stated: Balance sheet control should not be implemented for all banks, but it should be implemented for high-risk banks that have the ability to be reformed, and in this matter, the central bank should proceed with authority and speed, because reforming the banking system is difficult, and in addition to the authority of the central bank, it also needs the help of three powers.
Shaghaghi Shahri, despite the fact that a bank is like a heart in the economy, and as long as this heart is healthy, it can receive people’s deposits and create liquidity and distribute this liquidity among the productive and economic sectors, and as a result, the discussion of imbalance, freezing of imaginary resources and assets will disappear.
He said: Banks currently have sufficient resources and even in some cases this freezing of resources has reached 60%. Moreover, some banks have illusory and toxic assets such as many branches and unused assets that have frozen their resources.