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However, bank credit is only the first part of the story. The second part of the story is – why is the interest rate for the bank credit so high for the SME’s (Small Medium Enterprises) although the central bank’s interest rate is so low? The usual answer is that this is related to the risk of the loan. But is it so? What will determine to whom the banks lend money? What is the motivation of the banks?
In this blog article we look at the following questions:
- How does a monetary system work?
- Why are interest rates so low now?
- How do interest rates influence the economy?
- Why do banks s prefer to lend to the big corporations?
- What could be an easy solution?
Here is the recording of the webinar:
Takeaways
- Why are the central bank’s interest rates so low? Low-interest rates are central banking policies to respond to recessions. However, the central bank’s overdid this by keeping the interest rates too long down and by doing too much Quantitative Easing. If central banks would increase interest rates, then this would result in a recession
- Why are the interest rates so high for the SME’s? This is because the SME’s do not have credit ratings and banks would use high “Risk-Weighted Assets Budget” penalties when lending to the SME’s without the credit ratings. Therefore the banks charge higher interest to the SME’s for compensating the loss in the “RWA budget“
For more information about the webinar please check out the related articles from the SmartCredit.io blog:
Coronavirus economic crisis versus the 2008 financial crisis – What’s the difference?
Coronavirus crisis and Bitcoin Price – What’s next?
What drives the interest in the fiat money economy?
What drives the interest in the crypto economy?
Why do we have inequality?
Blockchain-based financial system – Are we ready?
Please note, this is not financial advice. Therefore, you should always consult with your financial advisor before you make investment decisions.
