Asking the pusher for help?

Sir, Martin Wolf holds that “Ireland needs help with its debt” February 23. But when looking at the help Ireland currently gets by way of crazy bank regulations one could also ask, what more help can it need?

Ireland’s credit rating was recently downgraded to A- and which means that banks are still allowed to leverage their capital more than 60 to 1 when lending to Ireland, while in comparison they are limited to about 12 to 1 when lending to a small business or an entrepreneur. And, before March 2009 the banks because of Ireland’s AA or better ratings, needed no capital at all when lending to it.

Without doubt what most caused the over-indebtedness that set off the current crisis was the minuscule capital required by the regulators of banks whenever these entered into operations connected with prime credit ratings. That Mr. Wolf can insist in that “the big failure was the behaviour of private lenders and borrowers”, without also referring to the out the “out-of-control” bank regulators who acted as the pushers of debt, is just amazing.

PS. When Ireland gets downgraded to B, then the risk-weight applied will instead of 20% be 50% which means that all banks need to post 2.5 percent in additional capital on all their exposure to Ireland… and that is why Ireland has not been downgraded to B.