February 01, 2011
Sir, Philip Stephens refers to Christine Lagarde, the French Finance minister as saying that banks should “contribute properly to economic recovery, to curb bonuses and to bolster their own capital”, “Critics will shut up when the banks pay up” February 1.
I wonder why the “formidable” Lagarde does not simply request the Basel Committee to eliminate those capital requirements for banks that so discriminate in favor of what is perceived as having a low risk of default; allowing for 60 to 1 and even higher bank leverages when triple-A ratings are involved? That is what has hindered and hinders the banks from allocating capitals more efficiently in order to create a more sustainable economic recovery; that is what has allowed and allows generating the huge bank profits which breeds huge bonuses; that is why the banks have been able and are able to grow too-big-to-fail with little capital.