Bank regulators give incentive for betting on failure rather than success.

Sir Peter Chapman at the very end of “Ten lessons of a banking collapse, in Lehman’s terms” September 15, writes “Capitalism now makes money by betting of failure rather that success” but unfortunately he does not expand into the causes of that. So why is it so?

One reason is that bank regulations, by taxing the operations perceived as having higher risk with special capital requirements (risk-weights of 100%) lowers the returns of betting on success where risk is high, while allowing for much lower capital requirements for what is perceived as having a low risk (risk-weights of 20% and even 0%) increases the yield that can be obtained from betting against the perceptions of low risk.