January 09, 2013

In banking the stable doors have not been shut behind the horses, much the contrary.

Sir, John Kay writes about: “The enduring metaphor of regulatory policy is the noise of stable doors being firmly shot behind the horse”, “Leveson should have learnt the lesson of the banking crisis”, January 5. 

Sorry, in the current case that metaphor is not applicable. By keeping capital requirements which are much lower for bank exposures perceived as “absolutely not risky”, than for those perceived as “risky”, and regulators now even making it worse with liquidity capital ratios also based on perceived risk, the doors to the stable are kept wide open, and the few strong calm heavy horses that remain in the stable, are also being frightened into running out, which they will do... sooner or later… because even the safest haven becomes a mortal dangerous trap if overpopulated.