WDR 2022 Video | Viral Acharya: Professor of Economics at NYU-Stern

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00:09 Finance can help promote an equitable recovery in

00:12 the economy post pandemic

00:15 by ensuring that capital allocation

00:17 is to those sectors and parts of the economy

00:21 where both the return on financial investment as well

00:24 as to the real sector are the greatest.

00:27 First,

00:28 capital markets can help reduce the reliance on bank finance.

00:32 Undercapitalized banks.

00:34 Enjoying regulatory forbearance policies have often channeled credit

00:40 to their most distressed borrowers in the form of evergreening or zombie lending

00:45 and resulted in protracted recessions or stagnation.

00:49 Second,

00:50 central banks can use their balance sheet

00:53 policies more judiciously

00:55 so as to not excessively affect

00:58 the market cost of capital

01:00 and favor

01:01 the group of securities that they purchase,

01:04 such as investment grade securities.

01:06 And third,

01:07 governments also have a key role to play here by

01:11 ensuring that their issuance of public debt is not so large

01:15 as to crowd out

01:17 other private sector borrowing,

01:19 especially by small and medium sized enterprises.

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Finance can help promote an equitable recovery in the economy post pandemic by ensuring that capital allocation is to those sectors and parts of the economy where both the return on financial investment as well as to the real sector are the greatest. First, capital markets can help reduce the reliance on bank finance. Undercapitalized banks. Enjoying regulatory forbearance policies have often channeled credit to their most distressed borrowers in the form of evergreening or zombie lending and resulted in protracted recessions or stagnation. Second, central banks can use their balance sheet policies more judiciously so as to not excessively affect the market cost of capital and favor the group of securities that they purchase, such as investment grade securities. And third, governments also have a key role to play here by ensuring that their issuance of public debt is not so large as to crowd out other private sector borrowing, especially by small and medium sized enterprises.

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WDR2022 TPV ViralAcharya Draft01

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WDR2022 TPV ViralAcharya Draft01

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