Banks’ assets in real estate and investments in “non-bank subsidiaries” is a recent economic phenomenon in our country which is referred to as “the paradox of liquidity”. Despite an abundance of liquidity at macro-level, providing “working capital” is posing major problems for banks and other financial institutions. The structure of banking system, banks management, regulations and improper monetary policies led to the distortion of banking system.
Banks start to invest in real estate for the purpose of nominal coverage of their losses caused by imposed policies and regulations. This results in an unhealthy balance sheet and a deepening stagnation. That would also cause disruption to financing and consequently shock in price of goods and services. In an analytical report “Donya-e-Eghtesad” studies the roots of these measures in banking system and the role of “toxic assets” in the current economic downturn and assesses the risk of such assets to Iran’s banking and credit system.
