August 13, 2011

When the going gets risky, the risky should get going!

Sir in your “Financial markets at their wit’s end” August 13 you hold that in the midst of all turmoil “credit market stayed relatively robust. Much sovereign debt in fact rallied”. 

Currently banks facing scarcity of regulatory capital are forced to go where the capital requirements are the smallest. If you want to call that something related to a robustness of the credit markets I guess you have not asked the opinion of those bank borrowers whose access to bank credit is being severely curtailed because lending to them requires a lot of that capital. 

It is vital for the economy that the natural risk-takers, the “risky” small businesses and entrepreneurs, have access to bank credit in competitive terms, and that it is not monopolized by those belonging to the regulatory “safe” franchise, the sovereigns and triple-A rated. Any levelheaded regulator would, in an emergency like this, long ago have reduced substantially the capital requirements for banks when lending to the “risky”, instead of sometimes even allowing a very risky zero capital when lending to some of the “safe”.