We need to stop this financial hocus-pocus!

Sir Arturo Cifuentes writes “Weak Basel II may not be enough to calm credit fears” December 18. Of course not! Basel II is just digging us deeper in the hole where the regulators placed us when they so unwisely thought that risks could be determined; and came up with their minimum capital requirements for banks based exclusively on risk, as determined in Basel I by the credit rating agencies and in Basel II by the models of the banks themselves. Those arbitrary regulations were the main cause for all the financial hocus-pocus we are now suffering.

If there is anything rational for the regulators to do now it would be to swallow their pride and require the same percentage of capital for all credits; give the banks some time to orderly adjust to this; and let the markets price the risk of the banks, for instance by forcing the banks to issue subordinated debt as was suggested by the Shadow Financial Regulatory Committee back in 2000.

To top it up, based “the bigger they are the harder they fall” I would also add some additional progressive capital requirements or insurance payment based on size.