So that Argentina will not have to cry, again

Sir, If Argentina, in a sovereign way, would just offer to include in the current restructure a little clause that states that if they were ever to take on new foreign public sector debt, all of it’s outstanding foreign debt would come due, then the future of that great country would truly shine bright.

As is, the recipients of any new exchange bonds will worry that the debt alleviation given will again tempt foreign investment banks to build up new short term exposure; as is, the argentine citizens will only have to brace themselves for history to repeat itself. Today more important for Argentina (and many other) than to solve its current debt overhang is to make sure it does not happen again. Doing so will open up investment flows to the private sector, Basel [Committee] willing, the only sector where these flows should always have gone to.

Sent to FT on November 24, 2004

Basel is just a mutual admiration club of firefighters seeking to avoid crisis

Published in FT November 18, 2004 The link is gone!

Sir, If a citizen from a developed country wishes to obtain finance from his local bank to buy a pricey retirement home in his local overheated market, then Basel poses no problem.

But should he want to buy a much more affordable home in a developing country and have his bank finance him, then Basel slaps such capital reserve requirements on the bank as to make it an impossibly onerous proposition.

This is just one way by which our bank supervisors in Basel are unwittingly controlling the capital flows in the world.

We also wonder in how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

Please, help us get some diversity of thinking to Basel urgently; at the moment it is just a mutual admiration club of firefighters trying to avoid bank crisis at any cost - even at the cost of growth.

PS. Just before the fall of the Berlin Wall, statist/socialist/communist regulators, decided banks need to hold zero capital when lending to the governments in their domestic currency but must hold 8% when lending to their unrated citizens.

PS. To top it up: It is what’s perceived as safe which is most dangerous to our bank systems.

PS. Here my 2019 letter to the Financial Stability Board

PS. Here is a current summary of why I know the risk weighted capital requirements for banks, is utter and dangerous nonsense.

PS. Here are my questions in 2023 to #AI ChatGPT – OpenAI, about the risk weighted bank capital requirements.