Ok, forget re-writing old loans. Why do banks continue to write new loan with terms that incentivize their debtors to turn down free money? That must hurt the default rate.
The problem might be recursive. If the shortfall is tacked onto the back end of the loan (plus interest), so long as the tenant is solvent it isn't problematic for the bank. If the client takes a write-down, though, the bank takes a write-down, and they may need to think about reserve ratios and regulation.
I suppose the bank isn't primarily interested in the loan being paid on time, they just want it paid some time. (Not sure, a delay might even be good for their business model?)
The bank is definitely interested in problems of solvency, and the tenant is interested in minimising cost, but kicking the can down the road might be the easiest option for them. Maybe a competitive creditor could break that impasse though. Threat of insolvency certainly would.
Probably at a high level the bank really only cares about being able to somewhat accurately asses the risk of the loan so they can attach the proper interest rate and then sell the debt..
I suppose the bank isn't primarily interested in the loan being paid on time, they just want it paid some time. (Not sure, a delay might even be good for their business model?)
The bank is definitely interested in problems of solvency, and the tenant is interested in minimising cost, but kicking the can down the road might be the easiest option for them. Maybe a competitive creditor could break that impasse though. Threat of insolvency certainly would.