March 07, 2011

Abundant surrealism is present in the discussions on bank regulations and stress tests

Sir, Patrick Jenkins and Brooke Masters report “Europe’s bank regulator attempts to restore faith” March 7. In it we read again experts opining on the basic percentage of capital requirements indicated by Basel III but not a word is said about the risk-weights which in Basel II diluted the banks required capital into nothing. How surrealistic is that?

Is that because no one wants to acknowledge the fact that European banks, while all the credit rating agencies downgrades are of the outlook for the ratings and not of the ratings themselves, are still allowed to lend, for instance to Spain, against zero capital?