October 22, 2012
Sir, Wolfgang Münchau writes about bank recapitalizations to end what IMF calls “the pernicious link between banks and sovereigns”, “A monumental project, but not an end to the crisis”, October 22.
But both Münchau and the IMF seem to think that pernicious link goes only in one direction, that of sovereigns guaranteeing their banks, while ignoring that so much of the current troubles have been caused by banks being allowed to lend to sovereigns on extremely favorable conditions, with respect to the capital they must hold thereto.
Make a bank need to hold as much capital when lending to a small business or an entrepreneur than when lending to the sovereign, and watch what will happen to the interest rates on sovereign debt.
I am not giving up on making the thick as a-brick-bank-regulatory-establishment understand, and that goes for FT experts too.