It has nothing to do with anyone being “macho”, far from it!

Sir, John Kay in “How not to measure a business – by its rate of return”, June 22, writes “Bank’s macho pursuit of rates of return led not to efficient companies but to the near collapse of the financial system”.

Forget it! If banks had pursued rates of return by for instance lending to Argentinean railway projects then we could perhaps use “macho”, as is they went for what was AAA rated of for Sovereigns like Greece, because that’s where the wimps of the Basel Committee authorized them to leverage their capital more than 60 to 1.

Kay has not yet understood what happened. I hope he dares to ask himself the following: “If I was a responsible bank regulator, what would cause me to lose most sleep at night, the excessive lending by banks to what was perceived as risky or the excessive lending by banks to what was perceived as not-risky but that could in fact be very risky?

Once Kay has answered the previous question, as it must be answered, and then analyses how the current capital requirements are treating what is perceived as not-risky as if it really was not-risky, then he will understand the monstrous mistake committed by the bank regulators.