Clogged-Up Banks Restrict Liquidity: Economist

Kirsten Bennett, Special to

Export-driven Asian economies need to focus on regional financial markets to rebalance as US policy remains uncertain and ‘very volatile’ and unreformed banks act as a brake on the huge flow of liquidity coming from central banks, Kevin Gaynor, chief markets economist at RBS, told CNBC Tuesday.

Rebalancing Act

“There’s kind of a fear that the rebalancing that is required, the outlook for the US consumer, and capital spending process for the next few years is still extremely uncertain,” he said, adding that the “policy environment remains very volatile.”

In addition to uncertainty in US policy, “demand is falling off a cliff and retail sales numbers are really declining fairly rapidly,” Gaynor said, which requires a change in financial architecture with a focus on growing regional financial markets.

In Western economies, people are not convinced that we are on the basis of a durable recovery, he said, adding that the problem was final demand, "mixed in with a musing sort of anecdotes especially in Japan around that we’re repeating the zombie bank problem, we’re actually going down the same route."

"The banking sector is not cleaning up its balance sheet and that’s acting continually as a restriction on the enormous liquidity that is coming from the central bank level and getting it out to the real economy," Gaynor explained.

Rebalancing “requires a bigger financial market in the region and more bank support for loan growth,” he added.

- For the full interview, see video clip above

Click here for additional CNBC interview with Kevin Gaynor