Are we to see us all as public servants?
Sir, having protested for years the artificial risk-adverseness that the Basel regulations introduce in our financial sector, by means of the minimum capital requirements for banks, I cannot but agree fully with Mr Andrew Hope in that “Basel II has become an obstacle to trade flows” November 18.
Authorities are currently trying to stimulate the banks to give credits to Main Street, the small businesses but, in times of severe shortages of bank capital, they insist on keeping in force requirements that instruct a bank that wishes to give a loan to a corporation that is rated from AAA to AA- to set aside 1.6 units of capital for each 100 invested; but for an A+ to A- rated they need 4 units; if BBB+ to BB-, 8 units; and below BB-, 12 units of capital.
Imagine being a BB- corporation talking to a bank that needs to set aside 12 units of capital in order to lend you 100. When compared to an AAA corporation, can you imagine how much more you have to pay in interests only to make up for the costs derived from regulations? And then the bank also needs to charge you their real net risk premium.
We need our regulators to urgently understand that risk is the oxygen for any development, and for any recovery, in the same way they need to understand that just saving jobs won’t get us anywhere, when what we really need is to create millions of decent new jobs.
Do regulators really think there is a future for all of us as government employees? Is it therefore that from a bank investing in any sovereign claim with a rating of AAA to AA- they only require… zero capital?
Authorities are currently trying to stimulate the banks to give credits to Main Street, the small businesses but, in times of severe shortages of bank capital, they insist on keeping in force requirements that instruct a bank that wishes to give a loan to a corporation that is rated from AAA to AA- to set aside 1.6 units of capital for each 100 invested; but for an A+ to A- rated they need 4 units; if BBB+ to BB-, 8 units; and below BB-, 12 units of capital.
Imagine being a BB- corporation talking to a bank that needs to set aside 12 units of capital in order to lend you 100. When compared to an AAA corporation, can you imagine how much more you have to pay in interests only to make up for the costs derived from regulations? And then the bank also needs to charge you their real net risk premium.
We need our regulators to urgently understand that risk is the oxygen for any development, and for any recovery, in the same way they need to understand that just saving jobs won’t get us anywhere, when what we really need is to create millions of decent new jobs.
Do regulators really think there is a future for all of us as government employees? Is it therefore that from a bank investing in any sovereign claim with a rating of AAA to AA- they only require… zero capital?
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