Plain “bad” regulators!
Sir Gillian Tett is obviously right in that this crisis was not the fault of “maths” or “economics” but of the “bad” maths and economics that was used and abused, “What happen to markets when numbers don’t add up”, April 16.
The question is why we cannot equally accept that the problem was not the lack of regulations but the existence of truly “bad” regulations. Is it really so impossible to imagine that the world landed in the lap of a particularly inept bunch of regulators, who were allowed to unsupervised empower credit rating agencies too much and concoct venomous capital requirement potions? The evidence of that being the case is overwhelming… and it really behoves us to act accordingly.
ps. Below, as part of the “overwhelming evidence” I refer to above, are some examples of how financial regulators set the capital requirements for the banks depending on whom they lent to.
Sovereigns rated AAA to AA were given a risk weight of 0% which results in a cap.req of zero percent.
Corporations rated AAA to AA were given a risk weight of 20% which results in a cap.req of 1.6 percent.
Small businesses or entrepreneurs, unrated, well they were risk-rated at 100% which results in a cap.req of 8 percent.
It is not that 8 percent is high but, when given the opportunity of zero or 1.6 percent capital… where did you think the banks went?
Should bank regulators not known that sovereigns and AAA corporations already have access to the capital markets and so that the first role of our banks is to help those small businesses or entrepreneurs who provide dynamism to the economy and the jobs we need, and to support them on their way to the capital markets?
Should regulators not know that in a world of coward capitals those perceived as being low risk are already favoured by lower interest rates and do not really need the assistance of further benefits given to them by regulators?
Should regulators not have known that by adding another layer of benefits to the AAAs they could create a stampede, turning safe-havens into dangerously overcrowded havens?
Should regulators not have known that sooner or later credit rating agencies would make mistakes or be captured?
The question is why we cannot equally accept that the problem was not the lack of regulations but the existence of truly “bad” regulations. Is it really so impossible to imagine that the world landed in the lap of a particularly inept bunch of regulators, who were allowed to unsupervised empower credit rating agencies too much and concoct venomous capital requirement potions? The evidence of that being the case is overwhelming… and it really behoves us to act accordingly.
ps. Below, as part of the “overwhelming evidence” I refer to above, are some examples of how financial regulators set the capital requirements for the banks depending on whom they lent to.
Sovereigns rated AAA to AA were given a risk weight of 0% which results in a cap.req of zero percent.
Corporations rated AAA to AA were given a risk weight of 20% which results in a cap.req of 1.6 percent.
Small businesses or entrepreneurs, unrated, well they were risk-rated at 100% which results in a cap.req of 8 percent.
It is not that 8 percent is high but, when given the opportunity of zero or 1.6 percent capital… where did you think the banks went?
Should bank regulators not known that sovereigns and AAA corporations already have access to the capital markets and so that the first role of our banks is to help those small businesses or entrepreneurs who provide dynamism to the economy and the jobs we need, and to support them on their way to the capital markets?
Should regulators not know that in a world of coward capitals those perceived as being low risk are already favoured by lower interest rates and do not really need the assistance of further benefits given to them by regulators?
Should regulators not have known that by adding another layer of benefits to the AAAs they could create a stampede, turning safe-havens into dangerously overcrowded havens?
Should regulators not have known that sooner or later credit rating agencies would make mistakes or be captured?
Posts
