Vikram Pandit might need to go back to banking school

Sir in “We must rethink Basel, or growth will suffer” November 11, Vikram Pandit, the Citigroup chief executive, after making a lot of sensible comments about the difficulties of measuring risk, says: “No one disputes that riskier loans should be backed by higher level of capital”.

Surprising, is Pandit not aware that Citigroup, and all other bank for that matter, charge riskier clients higher interest rates and that does risk-premiums go straight into capital? Does he not know that the risk level of any operation is often not reflected in the amount of capital required but in the cost of capital raised?

Capital requirements based on ex-ante risk perceptions simply do not make sense… except if you are to charge all bank clients the respective weighted-capital cost, plus the same risk-premium. Is Citigroup willing to do that?