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The combination of still-high bank charges and shrinking loans suggests the problem lies with the supply of credit not demand for it, says Kevin Daly at Goldman Sachs.If that is the case, argues Mr Daly, the best solution would be for the Bank of England to buy bonds issued by banks.
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While most people see the move as a sign of government desperation, it may also help some banks facing shrinking loan demand.
Raising more capital would have been the alternative to selling assets and shrinking loan portfolios, but clearly the confidence in the solidity of banks' edifices had evaporated.
"By shrinking those loans, we were shrinking our earning power," Hurst says.
And yet, the banking industry is shrinking its loans.
And its effects are amplified in the periphery by a continuing credit crunch, as undercapitalised banks deleverage by selling assets and shrinking their loan portfolios.
"Some banks in the region have already made it clear that they intend to raise their capital ratios by shrinking their loan books – with adverse economic effects – rather than by injecting new funds," said Jonathan Loynes, chief European economist at Capital Economics.
The warm-up event, a meeting of finance ministers and central bankers in London on September 4th, produced a fog of contradictory statements by multiple politicians, some from the same countries.Depending on whom you listened to, capital requirements will get tougher quickly or very gradually, to prevent banks shrinking their loan books.
It could also inhibit consumer spending as stock portfolios shrink and loans are harder to come by.
The fund assumes that bank bosses act sanely, cutting dividends and allowing assets to shrink as loans mature.
In the optimistic case, peripheral economies may still be forced to deleverage faster, because foreign banks want to shrink their loans to match their deposits.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com