November 13, 2012

With Basel III bank regulators are doubling down on the same mistake as Basel II. They must be stopped!

Sir, you conclude “A Spanish tragedy”, November 13, with “Banking crises have a human cost. “The price paid by some has already been too high. Unless Madrid and the banks face up to the truth, this will only get higher”. Absolutely! 

Spain’s banks excessive financing of housing was a direct consequence of bank regulators who allowed banks to earn a much higher return on equity when doing so, because housing was one of the officially deemed “The Infallible”, and therefore benefited with causing so much lower capital requirements for banks than when lending to “The Risky”. 

And so when are you going to suggest that the Basel Committee and all your other regulatory friends also face up to the truth? Currently it would seem that they are only doubling down on their mistakes, since Basel III, besides keeping the capital requirements based on ex-ante perceived risk of Basel II, will now also include liquidity requirements based on the same silly illusions… and FT does not seem to mind.