FT, dare to look beneath the tip of the iceberg!

Sir, Jennifer Hughes in “Bank dip into tool box for Basel III” March 10, insists, as you all do, on keeping her eyes firm on the tip of the regulatory iceberg, without the slightest concern of what lies beneath. She, as you all do, speak about the minimum equity capital ratio as a percentage of risk-weighted assets while ignoring that if these risk-weights are wrong this has no meaning.

For instance, early this morning Spain was still weighted 0 percent and now, as a result of the two-notch downgrading of its credit rating, suddenly its risk-weight has become 20%; and which means, in Basel II terms, that banks will now need a whopping 1.6 percent in capital when lending to Spain... which means that banks will now be allowed to only leverage their capital a meager 62.5 to 1… poor banks!