And again, failed regulators, want to show off as puritans!

Sir, the first article I published in my life, in June 1997, was titled “Puritanism in Banking”. In it I expressed serious concerns about how bank regulators, after a crisis, were overdoing it, in order to either show off or to have their previous lax oversight forgiven. It all gave way to a sort of “I am a stricter regulator than you are… no you aren’t… yes I am… no you aren’t… Yes I am, yes I am, yes I am.” 

The article ended with “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.” 

Today, fifteen years later, I get the same sinking feeling when I read about a request for “all banks everywhere to raise their tangible equity capital to 20 percent of assets”, Chris Giles’ “The bank that roared”, July 14. 

Do they not calculate how much bank capital would need to be raised in order to do that? Or are they contemplating keeping the risk-weights, which in such a case would mean causing even higher distortions? 

I believe that the basic 8 percent of capital requirements of Basel is sufficient as long as it is not diluted by risk-weighting. Already to achieve that 8 percent, for all assets, constitutes a major challenge, considering that some current capital requirements for banks are basically zero, like for instance when lending to the “infallible sovereigns”.