June 21, 2012

Why do bank regulators subsidize Germany’s borrowings and tax Spain’s?

Sir, I refer to your “Eurozone weights another palliative” June 21, and many other writings referring to the increasing interest rates on some European sovereign borrowings.

The capital requirements for banks when lending to Spain, is much larger than when these lend to Germany, why? Is the risk differential not already imbedded in the rates? Is not the interest rate spread between those borrowers higher than they would be in a free market? Is this not counterproductive? Why does Germany receive a regulatory subsidy while Spain has to pay a regulatory tax?