Bank Corporate Lending: A Bubble in Progress and Suggested Remedies

Abstract

The causes of the Great Recession (beginning in 2008) and the solutions to prevent a recurrence have been argued over endlessly. The government has responded with various actions: e.g., the Dodd-Frank Act (2010); stronger oversight of the activities of commercial and investment banks; etc. A significant unaddressed financial concern is the process of bank lending to businesses, which is largely unrestricted as to loan policies, required collateral and other safeguards, and the strength of loan covenants that protect the bank during the duration of the loan. This article discusses the situation with regard to loan covenants and suggests various remedies.