Crises occur when what was thought to be low risk turns out to be very high risk

In July 2012 in “Seven ways to clean up our banking ‘cesspit’” Martin Wolf wrote: “In setting these equity requirements, it is essential to recognise that so-called ‘risk-weighted’assets can and will be gamed by both banks and regulators. As Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk. For this reason, unweighted leverage matters. It needs to be far lower.”