Higher funding costs, capital constraints and lower demand for loans have all contributed to the sharp drop in new lending from banks, but none of these factors either fully explain the fall, or imply a permanent credit contraction.

In a report last week, Morgan Stanley's European credit analysts argued that other factors are at play in compounding the sharp contraction in bank lending over the last 18 months, and one factor in particular could continue to do so in the coming months and years.