European companies are overly reliant on banks to meet their funding needs, hobbling efforts to resuscitate the economy as banks shrink their lending activities.
The European Central Bank has identified the failure of corporations to echo their U.S. peers by tapping the stock market and issuing commercial paper, rather than borrowing from banks, as an obstacle to economic recovery. That's why the ECB is focused on pumping more cash into the banks by buying asset-backed bonds and making long-term loans, in the hope the money will eventually flow into the economy.
A better solution would be for corporate treasurers to be bolder in how they fund their companies, especially in bypassing the banks and borrowing directly from willing investors.
Europe's companies have long followed a business model in which large, powerful banks play the dominant role in finance and governance. A close relationship between executive and banker is an obvious boon when the time comes to apply for a new loan. Yet it can also be a disadvantage.
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