November 20, 2012

What bankers are really scared of, are the regulators becoming less Taliban.

Sir, Patrick Jenkins writes that bankers in London talk these days about “the Taliban” referring to the Bank of England’s Financial Policy Committee, “Banks unnerved by BoE’s extreme focus on capital” November 20. 

But bank regulators do act like full-fledged Taliban. Their regulatory discrimination in favor of “The Infallible” and against “The Risky” is as odious and as without reasons than the Taliban’s discrimination against women. 

Jenkins also reports on Barclays raising a couple of billions in contingent capital bonds and which will be wiped out if the ratio of the bank’s core tier one capital to assets weighted for risk, falls below 7 percent. 

But what if regulators became less Taliban and decided that “The Infallible” “the men”, was not that infallible, and that the risk-weight for lending to them, the men, should be the same as for women? That would wipe out all bank capital, immediately. Just Think for instance of a 7 percent capital requirement on exposures to the infallible sovereign? 

And so what bankers are really praying for in London, is for the regulatory Taliban to remain true orthodox Taliban.