October 12, 2012

Gillian Tett does just no get it!

Sir, Gillian Tett writes “Stern sermons and looser rules won’t get banks lending more” October 12. She does, not or wants not to really get it. 

It is simply not just a question of banks lending “more”, or having these as an alternate QE money injection in the economy so to say, but, primarily, to get the banks to lend better, in terms of what the economy most needs. That is known as searching for a more “efficient economic resource allocation”. 

Right now, because of capital requirements (plus now, to make it worse, also liquidity requirements) which are based on ex-ante perceived risks, and made stricter by the big scarcity lack of bank equity, banks tend to lend to “The Infallible” and avoid lending to “The Risky”. The latter include of course the small businesses and entrepreneurs. 

And so, what the British regulators are currently doing, at long last, thank God, with their “quietly loosening bank rules”, is discreetly trying to reduce the regulatory discrimination against “The Risky”. That it is hard for them to be too forthright about it is sort of understandable, because that would signify having to admit how stupidly they behaved earlier.

Frankly, on the face of it, it would seem to me that Gillian Tett could learn much more about banker behaviour from Mark Twain than from Phil Coffey.