The consequences of all banks managing their own risks and some few regulators managing the risks of all banks, are not the same.

Sir, Gillian Tett correctly holds that risk management is no exact science “Anthropologists join actuaries to teach us all about risk”, August 3. You would then assume she should object when regulators try to manage the risks of banking by setting the risk-weights which determine the capital requirements of banks… but it would seem she has no major problem with that. 

What she and so many other experts fail to understand is the world of difference that exists between the consequences of millions of market participants each one trying to manage their own risk and some few regulators trying to manage the risks for all, and this even if anthropologists and actuaries are in regulatory team. This crisis is the result of the latter, something which can be empirically confirmed, by running a regression between all current bank problem assets and the fact that when banks incorporated those assets on their books they needed to hold very little capital, only because those assets were officially deemed as safe.