November 28, 2012
Sir, I do not opine on Mark Carney´s qualifications as a traditional central banker, these are probably fabulous, but, as a bank regulator, like Mario Draghi, Lord Turner, Michel Barnier, the Americans and the rest of the current bunch, he is not qualified.
Anyone who does not understand that lower capital requirements for banks on assets perceived as “The Infallible” than on assets perceived as “The Risky”, artificially elevates bank returns for the first and makes the other uninteresting, cannot be a good bank regulator… and this is simply so because a good bank regulator also thinks about the purpose of a bank, primarily that of allocating efficiently resources in the economy.
To me all current regulators are also non-transparent statists, since only statists could think of requiring a bank to have some capital when lending to “The Risky”, like the small businesses and entrepreneurs, while allowing the banks to get away with zero or very little capital when lending to “The Infallible”, like to “infallible” sovereigns, and to their courtiers, the triple-A rated.
Well, the result of all their badly concocted risk-adverse regulations, Basel I, II, and III, will be that we are all going to see our banks and our savings drown into oceans of absolutely worthless “absolutely safe assets”; and only then will the regulators perhaps remember that the actions of “The Risky” are in fact through history those that most have contributed to our economic well being.
That they´ve learned their lesson? Forget it! Basel III only doubles down on their mistake. Now on top of capital requirements based on perceived risk, we are also going to have liquidity requirements based on perceived risk; and the too big to fail their regulations helped to grow, have now been promoted into "Systemic Important Financial Institutions", leaving the rest of the banks in the unimportant segment.
I assure you that history will not be kind on these regulators (nor on their collaborators)
PS. This mostly references Brooke Masters´ and Claire Jones´ “Outspoken and innovative, Carney enjoyed a good crisis” November 28.