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The take-up of the first long-term lending operation, in September, was disappointingly low.
The development bank is instrumental in providing long-term lending and in guiding privatizations.
The Federal Reserve is well into its third round of "quantitative easing," in which it buys longer-term assets to bring down long-term lending rates.
In contrast, private commercial banks get, on average, just 1%.Ideally, commercial banks need to get into the business of long-term lending to companies.
focus more on making short-term loans to countries that have financial crises and less on long-term lending and development assistance.
A congressional commission just last week issued a scathing critique of the fund and recommended that it cease all its long-term lending programs.
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EIB president Philippe Maystadt said: "Infrastructure finance in Europe has suffered since the financial crisis and banks face new constraints on long term lending.
The upshot of the ECB's €1 trillion in long-term bank lending is that sovereign premiums were temporarily depressed...by national banks that purchased sovereign debt to post it as collateral at the ECB.
Far from channelling money to companies, modern banks resemble "real-estate funds", the authors claim, in which long-term mortgage lending is funded by short-term borrowing from the public.The same authors also find that the growth of mortgage lending has led to property bubbles and financial instability.
Both institutions still have a useful role to play and they remain a clear overall plus for the world but they can and should be improved.Start with the Bank, which is actually a complex hybrid of aid agency, long-term development lending bank and technical-assistance outsourcing centre.
Quite simply and for all the U.N.'s posturing the World Bank, with its long-term development lending, and the IMF, which concentrates on short-term balance-of-payments crises, are just about the only international institutions doing much that is practical about keeping the gap from growing greater.
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Justyna Jupowicz-Kozak
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