We did not have a crisis because of a general lack of bank capital!

Sir, Tony Jackson discusses the “Basel struggle to put bank capital into perspective” June 27. In doing so he evidences how he and most others discussants tend to forget that bank crisis does not result from lack of capital but by the banks doing the wrong type of lending. Suppose all the banks in a nation had 100 percent capital and then lost it all lending to some sovereign, like Greece, would that mean that the taxpayer would have no losses? How do you separate the taxpayers´ wellbeing from the citizens´ wellbeing? Let us never forget that at the end of the day, it is the quality of the lending of banks that matters the most, not their capital.

My point has all the time been that whenever regulators act like risk managers and set different risk-weights for different lending, which will effectively mean different capital requirements on different lending, they are effectively interfering in such a way that will guarantee that the quality of the lending will be worsened. We did not have a crisis because of a general lack of capital we had a crisis because for some type of lending the regulators authorized basically no capital at all.

From a nanny we should only expect she cares for the risks perceived, but, from our regulators we have the right to expect they care for the risks that are not perceived.