In the following column we investigate balance-sheet growth, capitalisation, and deleveraging of European banks since the end of 2008 and show that based on existing empirical evidence banks have so far reduced their leverage (i) markedly and (ii) mainly by raising capital rather than reducing exposure to the real economy. In doing so, banks were able to address two concerns at the same time: One related to their fundamental soundness (“banks are undercapitalised”), the other related to potential harm done to the economy at large (“banks are causing a credit crunch”). This is particularly important, as history has shown that deleveraging too slowly can lead to periods of stagnant growth.

http://www.voxeu.org/article/room-manoeuvre-among-eurozone-banks