I expected the Canadian bankers not wanting to live in never-risk-land.
Sir when the heads of the six major Canadian banks, those banks which better health makes them the object of envy of so many regulators and taxpayers in the world, issue a joint communiqué, we should read it very carefully “It is time to press on with bank reform” April 22. Unfortunately, my expectations were too high and I was disappointed.
Not only did it read almost like a Julia Child recipe... a little bit more of Tier 1 capital here.... and some more leverage testing there... but it also showed that neither they have a clear idea of what hit us.
Though they correctly state “Regulators do not need to specify which businesses banks should enter” they do not realize that is exactly what regulators do when they risk-weigh assets. Markets discriminate risks by charging different interest rates and so, when regulators award the lending to some assets lower capital requirements, because these are perceived by the credit rating agencies as less risky, they are actually instructing bankers to go to “risk-free” land. And, our problem, as a society, and though we do appreciate the efforts of lowering the risks in banks, is that we are not sure our best interests or future really lies in Never-risk-land.
They also write that if no distinctions, in terms of capital requirements, between low-risk and high-risk assets, something that I much favour, this “would encourage financial institutions to take more risk, which could make the system less stable”. Are they blind? Have they not wakened up to the fact that this crisis resulted from capitals stampeding in the search of AAA ratings, precisely as a consequence of the low capital requirements?
Where are the bankers who want to have the right to lend to their traditional client small businesses and entrepreneurs on their way to capital markets, without being distracted only because regulators favours what is perceived as having less risk? I had hoped these bankers were in Canada, now I am not any longer sure of that.
Not only did it read almost like a Julia Child recipe... a little bit more of Tier 1 capital here.... and some more leverage testing there... but it also showed that neither they have a clear idea of what hit us.
Though they correctly state “Regulators do not need to specify which businesses banks should enter” they do not realize that is exactly what regulators do when they risk-weigh assets. Markets discriminate risks by charging different interest rates and so, when regulators award the lending to some assets lower capital requirements, because these are perceived by the credit rating agencies as less risky, they are actually instructing bankers to go to “risk-free” land. And, our problem, as a society, and though we do appreciate the efforts of lowering the risks in banks, is that we are not sure our best interests or future really lies in Never-risk-land.
They also write that if no distinctions, in terms of capital requirements, between low-risk and high-risk assets, something that I much favour, this “would encourage financial institutions to take more risk, which could make the system less stable”. Are they blind? Have they not wakened up to the fact that this crisis resulted from capitals stampeding in the search of AAA ratings, precisely as a consequence of the low capital requirements?
Where are the bankers who want to have the right to lend to their traditional client small businesses and entrepreneurs on their way to capital markets, without being distracted only because regulators favours what is perceived as having less risk? I had hoped these bankers were in Canada, now I am not any longer sure of that.
Posts
