The only acceptable antidote against tax-havens should be tax-heavens

Sir, Jeffrey Sachs’ unrestrained attack on tax-havens, shows there are many ways of exploiting tax havens. “Austerity exposes the global threat from tax havens” April 30.

As a citizen, I have for a long time held that the best enemy of tax havens is the existence of tax heavens, by which I mean countries in which a government respectfully earns its fiscal revenues by delivering good government. 

I come from a country, Venezuela, which in the 80s I saw rescued after its governments, after being excessively financed by foreign banks, had submerged into a total crisis, precisely because its citizens had saved abroad, and were able to return resources to their nation when they felt conditions so merited, instead of allowing these resources also to get wasted.

And I sure pray that for instance in Greece’s case, there is also a lot of Greek private capital in safe havens, ready to return to their country. And so, in this respect Sachs should start by making sure we have good and worthy politicians, before closing the escape doors on desperate citizens, which can otherwise most probably lead to having even worse politicians.

Also, over and over again in these debates about tax-havens we read about immense amounts tucked away, implying that if only governments could lay their hand on it, the world would be saved. In this case “Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn.” Deposits… what deposits? All that money is placed somewhere and so if it was recovered by governments in its entirety it might very well just mean that $21tn was taken out of private management, like the stock markets, and handed over to perhaps inept and corrupt governments. Would that save the world? Forget it.

Finally, I would wish to remind Professor Sachs that public greed can easily be even much more destabilizing than private greed.

Bank rules already hinder inclusion and widen the gap

Sir, Alfred Hannig in his letter “Rules shouldn’t hinder inclusion” writes about the importance of finding a balance in financial regulations between the need of protecting the banks from systemic risks and the need for the inclusion of those currently without access to the financial system. And he is of course right when holding that “infection in the financial system will not come from financial inclusion” just the same way that a financial crisis will never result from excessive exposures to “The Risky”, these will always come from excessive exposures to what has erroneously been considered a member of The Infallible”.

That said Mr. Hannig should take notice that current bank regulations, with their capital requirement based on “perceived risks” already cleared for by means of interest rates (risk premiums) amounts of exposure and other terms, already attempt against the inclusion of many; and only helps to further widen the gap between the haves, the old, history, the developed, “The Infallible” and the have-nots, the young, the future, the developing, “The Risky”.

More than the public borrowing rate trapped at zero, it is the banks that are trapped into public lending

Sir, I refer to the “Austerity is hurting. But is it working?” debate, April 27.

The Yes camp, represented by Chris Giles advances by far the strongest argument by just stating the fact that with respect to “finances to fight crises or wars. Advanced economies had leeway in 2008; they do not now”.

The No camp, represented by Robin Harding, echoing Martin Wolf, refers again to the boost that fiscal policy could give the economy “when interest rates are trapped at zero”. Again no consideration is given to the fact that the infallible sovereign rate is “trapped” at zero in much by capital requirements for banks that are extremely biased in favor of public borrowings. And again no consideration is given to the fact that the “risky”, like the small and medium businesses and entrepreneurs, therefore need to pay banks exaggerated risk premiums in order to provide the banks with the same return on their equity; that is if they even can get the banks to take notice of them.

If the No camp would try to figure out what would happen if for instance bank were required to hold 8 percent on all assets, including sovereigns, then perhaps they would understand that more than the public interest rate trapped at zero, it is the banks that are trapped into public lending.

And if you do not think there is something wrong with that, you've got to be communists.

Regulators, you can even let Libor be the result of a raffle, but please stop distorting and subsidizing the risk-free rate

Sir, I refer to Tom Braithwaite’s and Brooke Masters’ “Regulators urge speed in replacing the Libor rate” April 26.

By allowing banks to hold much less capital when lending to the “infallible” sovereigns than when lending to “risky” citizens, regulators have completely distorted what is probably the most important reference rate, the borrowing rates of the most solid sovereigns, one of these usually the proxy for the risk-free rate.

And that is why I am amazed about how much attention regulators give to the Libor rate, a rate that really, for its small relative importance, could just as well be the result of a raffle among some quotes, after eliminating some outliers. One day, the winning Libor could be somewhat higher than its true rate, and on that day, Libor based borrowers would pay somewhat more, and investors earn somewhat more; other days the picked Libor could be somewhat lower than its true value and the opposite would hold. But, in the long run, no one is really much harmed.

Could it be that regulators are ashamed of what they have done and are using the Libor incident as a distraction?

Europe what you really need is much less risk-taking austerity

Sir, Philip Stephens refers to the “high public debt suffocates growth” vs. “it is low growth that drives up debt” controversy. It all sounds so Lilliput vs. Blefuscu to me, “The New Deal for Europe: more reform, less austerity” April 26.

What currently suffocates the growth of the real economy are those crazy capital requirements for banks that create enormous incentives for banks to shun all what is officially perceived as “risky” like small and medium businesses and entrepreneurs, and to earn all their return on equity by lending to what is perceived as “absolutely infallible”. And, since in Europe the banks have normally been more in charge of financing the risky than those in the US, where more alternative sources of funds exists, Europe suffers the most.

Stephen refers to the existence of “ossified labour markets that lock out young people and discourage investments and innovations”, and he is right of course, but, when compared to bank regulations which lock out the “risky”-risk-takers in the real economy, their effects are sort of minor.

When banks have effectively been castrated, and are singing in falsetto, even low public debt does not help growth and, since currently the lowest capital requirements for the banks apply when these lend to the public sector, higher public debt level will result. It suffices to read Martin Wolf’s almost monothematic preaching for the public sector to take advantage of low interest rates, so as to borrow and take on large infrastructure projects, without understanding that those low rates are just a mirage, caused by regulatory subsidies paid for by the many extremely onerous missed opportunities in the real economy.

Europe, please inform your overly timid and dumb bank regulators that no major bank crisis ever has resulted from excessive bank exposure to the “risky”, they have all resulted from major exposures to what was dangerously perceived as “absolutely safe”.

But also beware of the much greater risk derived from excessive lack of testosterone and dopamine

Sir, the fundamental problem with good articles like Sarah Gordon´s “Call in the nerds – finance is no place for extroverts”, April 25, is that they tend to analyze risks from the perspective of when risk-taking goes bad, without caring much for when risk-taking goes right.

The problem we are facing now is that bank regulators, with too little testosterone, and too little dopamine, and too little understanding of what they were doing, gave the banks extraordinary incentives to lend and invest in what was perceived as “safe” and to stay away from what was perceived as “risky”… and so the banks did… and loaded up on AAA rated securities, Greece, Spanish real estate and others safes.

Indeed if regulators had incorporated more behavioral analysis then they would not have based the capital requirements for the banks based on perceived risk, like that in credit ratings, but based to how bankers react to perceived risk. And then, instead of more-risk-more-capital less-risk-less capital, they might have applied a somewhat inverse capital requirements, since bank crisis have never ever resulted from excessive bank exposures to something perceived ex ante as “risky.

PS. As gold is mentioned, just as a curiosity let me remind you that in the Report on Global Financial Stability 2012, of April last year, the IMF listed 77.4 trillion dollars in safe assets and therein gold represented 11 percent.

Martin Wolf, monetary profligacy should not be an article of faith either

Sir, Martin Wolf, insists in that because those “for room for maneuver, such as the US and even the UK” because they did not create stimulate enough the economy the “recovery has been even weaker and so the long run cost of the recession far greater than was necessary”, “Austerity loses an article of faith” April 24.

And to back up his arguments Wolf uses foremost the fact that UK, after reaching a net public debt of 240 per cent of gross domestic debt level, something that most probably most public sector lenders were blissfully unaware of, managed to work down the debt load, thanks to the industrial revolution.

Mr. Martin Wolf, let me just ask you the following four questions:

Where is today’s industrial revolution? 

Do you really think that back then the UK had regulators who gave banks extraordinary incentives to avoid taking risks? No matter what Carmen Reinhart and Kenneth Rogoff hold, in this sense, this time is indeed different.

What soaring private and public debt which led to the crisis was not the direct result of minuscule capital requirements for the banks required for the “absolutely safe”?

Finally what are we supposed to recover to, to the skewed economy we had before? Just so that house prices go up and banks earn 30 percent on their equity?

In October 2009, Martin Wolf kindly published in his Economist Forum my “Free us from imprudent risk-aversion” and I still hold, more than ever that it contains the explanation for what brought us the current crisis and what stops us from getting out of it.

Before we correct the incredibly dumb regulatory bias against risk-taking, any stimulus will just eat up any scarce stimulus space we have, for absolutely no good reason at all. 

Would the US not still be treading water had their QE’s been twice as large?

Again, and as I read Mr. Wolf’s arguments, to me, day by day he is becoming, more and more, a worthy representative of those baby-boomers with an “après mois le deluge” philosophy. As a grandfather, I should try to stop him.

With respect to increased capital requirements for banks, what matters most for growth and stability is how it is required.

Sir, I refer to Alex Barker´s and Tom Braithwaite´s “EU and Fed clash over US bank move” April 23. In all the hullaballoo what seems to be ignored, perhaps more by EU than by the Fed, is that with respect to increased capital requirements for banks, what matters the most is how it is required.

If bank regulators require banks to hold more capital, but keep the current risk-weighting system, that just means that The Infallible will be even more favored than The Risky, and since that would only increase the regulatory distortions… the result could only be increased instability.

But, if regulators instead require banks to hold more capital by eliminating the ridicule low risk-weights assigned to The Infallible, then The Risky agents of the real economy, like small and medium businesses and entrepreneurs, will be less discriminated, and therefore the real economy would stand a better chance of recovering… resulting in greater stability.

Capital requirements for banks based on perceived risks… talk about faith in a flimsy theory

Sir, Wolfgang Münchau writes about “The perils of putting one´s faith in a flimsy theory” in order to decry the not really proven possibility that as has been put forward by some, that 90 percent of public debt to gross domestic product would signify a threshold where more debt begins rapidly to negatively affect economic growth, April 22.

But if we are to talk about flimsy theories, and in which a lot of more faith has been invested, I would hold that the pillar of current bank regulations, namely that capital requirements which are much higher for what is perceived as “risky” than for what is perceived as “absolutely safe” could lead to increased financial stability, that one clearly takes the prize.

Again for the fifth consecutive year I questioned these distorting and odiously discriminating capital requirements during the IMF and World Bank meetings in Washington. Again, as always, I got no answer… for the regulators this is a sacrosanct principle that no one should dare to question... and actually they get upset if you do. Me a heretic!

FT, you urgently need to unclog your own thinking process.

Sir you write “Fixing the banks needs prudential plumbing, not bluntly closing the monetary taps”, “Better plumbing, not closed taps” April 19. And that evidences to me you, as so many experts, are as far away from understanding what is happening as one can be.

The problem is that the whole plumbing of the financial system has been clogged up by capital requirements for banks which favor “The Infallible” and discriminate against “The Risky” and so money is not flowing where it should... but only dangerously overpopulating what are perceived as safe havens and which is where all big bank crises occur. Therefore what we need is less stupidly prudential plumbing before opening the monetary taps.

Perhaps reading a set of questions which I am circulating during the World Bank and IMF’s Spring Meetings in Washington, April 19-20, could help to unclog your own thinking process.

Banks should make their profits by being real banks not simply by leveraging what is “absolutely safe”

Sir, Martin Wolf ends his “Britain’s economy should not go back to the future” April 12, writing “The country needs institutions, public and private, better capable of generating widely share growth.”

He is of course right, but what he refuses to acknowledge is how much lousy bank regulations which impose different capital requirements for different assets based on perceived risk has distorted their capacity to allocate economic resources efficiently.

Currently banks are making their profits not as they used to, by taking smart risks, but by leveraging enormously what is perceived as "absolutely infallible", something which as recently seen is also an extremely dangerous experiment. Therefore what is most urgently needed, not only in Britain is for bankers to become real bankers again.

Wolf also mentions some failures in the Thatcher legacy identified by Professor John Van Reenen of the London School of economics. These are “rising inequality, excessive financial deregulation and inadequate investment in both human and physical capital”, and these are all closely connected to the mentioned capital requirements.

If you favor the access to bank credit of those already much favored, the haves, the history, the old “The Infallible” you are discriminating against those already much discriminated against, the have-nots, the future, the young, “The Risky”. And that can of course only lead to rising inequality and inadequate investments. 

But to call this dangerous excessive regulatory prudence an excessive financial deregulation, that is pure nonsense. As I recently wrote to you, Margaret Thatcher would never have approved of these so sissy capital requirements for banks.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has told me not to send him anything more about these “capital requirements”… he already knows it all, so he thinks.

Chris Giles, can we have a little more respect for the “risky” small businesses please?

Sir, is Chris Giles a Basel Committee regulator? I ask this because the contempt he shows small businesses with respect to their access to bank credit “Boosting bank lending will not turn Britain around” April 11, is in line with the contempt with which bank regulators treat these. 

Any interest paid by someone perceived as “risky”, like small businesses often are, are worth less than the same amount of interest paid by someone perceived as “absolutely safe”. This is so because regulators, for absolutely no reason at all, allow the latter interest payments to be leveraged many times more on bank equity than the first. And to me, that is an expression of pure odious contempt… or imbecility. 

Yes, small businesses might account for only 10 percent of business investment, but in many ways they represent the frontiers of the real economy, and they might very well include those who will be the large and infallible companies of tomorrow. 

Chris Giles writes “Encouraging business lending involves a difficult short-term trade-off between the safety of banks and their willingness to lend”. Not at all! Not lending to the businesses and keeping the real economy moving forward that represents de-facto the most fundamental danger to the banks. I simply cannot understand what brings some to believe that banks can stand there shining in the midst of the rubble. 

Also I bet Mr. Giles would not be able to mention one single bank crisis that has resulted from excessive bank exposures to the “risky” small businesses.

Margaret Thatcher, if explained the capital requirements for banks based on perceived risk would ask “Are you nuts? Accept defeat?

Sir, I have read many obituaries of Margaret Thatcher that attributes to her much of the bank de-regulations they blame for the current crisis.

I do not hold to know the whole story but, let me assure you that if someone would have asked her about the possibility of, by means of bank regulations, allowing the banks to earn immensely higher risk-adjusted returns on their equity, by sticking to financing solely “The Infallible” and keeping away from “The Risky”, the Iron Lady would most certainly have asked “Are you nuts? That sounds like a defeat and I do not recognize the meaning of that word" 

And if also told that the most infallible of “The Infallible” was to be the government, and that therefore banks could lend to it without any capital at all, leveraging without limits, she would also most certainly have asked “Are you a communist?

But bankers still have to dance to the same lousy music still being played

Sir, John Plender is close to understanding what has happened when he writes “The Basel capital adequacy regime of the late 1980s was a lowest common denominator exercise… in pursuit of high returns on equity, banks ran down their capital to absurdly low levels”, “Radical reform transformed City’s role in global finance” April 10.

But he is not fully there yet. What was even worse than running down the capital to absurdly low levels was that bank regulators, with their Basel II, in June 2004, allowed this to happen in a way that discriminated based on perceived risks, credit ratings, risks that had already been cleared for by other means, and that completely distorted common sense out of the banks favoring "The Infallible" and discriminating against "The Risky"

And bankers to survive, and not be bought out or simply fired, had to dance to that lousy music while it played… and, unfortunately, since the discrimination based on perceived risk persists, they still have to dance to the same lousy music.

Much more important than guaranteeing sufficient capital, is that bank capital requirements do not distort.

Sir, I am amazed. Brooke Masters, Financial Time’s chief regulation correspondent seems to be surprised with what she writes in “The leverage story that banks want to keep under wraps”, April 9.

Sincerely I had assumed, years after the outburst of the crisis, and after so many explicatory letters I have written to her and other at FT, she would have at least known that the risk-weighting of assets dramatically hides the true extent of bank leverage.

And she writes: “Bankers argue that leverage ratio is a crude tool that penalizes basic low-risk products”, which refers of course to those low-risk products which already benefit from lower rates and ample access to finance. Sincerely I hope Masters will now at least understand sufficiently that the current risk-weighted ratios, penalizes what is perceived as “high-risk”, that which is already penalized with higher interest rates and lower access to bank credit.

Sir, much more important than making sure banks have sufficient capital, is to make sure that their capital requirements do not cause distortions in the real economy, and which dooms it to disasters in which not even perhaps a 99 percent capitalized bank could meet its obligations

More than protecting banks from future crisis, we need to protect our real economy from dysfunctional banks

Sir, Philip Augar, writes “Britain´s regulators were feted for their light touch” “Salz offers a prescription to protect banks from future crisis” April 9.

What? If Augar believes regulations which intrude on the markets through capital requirements for banks which allow banks to leverage 60 times or more on their equity any interest rates paid by “The Infallible” while restricting to a 12 to 1 leverage interest rates paid by “The Risky”, are “light touch” he has just not informed himself of what has been happening.

Augar writes that the most important recommendation by the recent Salz Review, commissioned by Barclays to study its culture and business practices, is the “necessity of creating the right environment for feedback… and to question accepted wisdom constantly”.

Indeed, I have for years been trying to ask regulators about their reasons for capital requirements for banks which are based on perceived risks, when those perceived risks are already cleared for by the banks in the interest rate they charge, the size of the exposure and other terms. And I have never ever received an explanation more than the normal “more risk more capital, less risk less capital that sounds logical” mumbo jumbo.

Those differential capital requirements are distorting all common sense out of the real economy. Let us remember that much more important than to protect our banks from future crisis is to protect our real economy from being assaulted by banks made dysfunctional by regulators.

And so much more urgent than opening up the boardrooms of banks, is opening up The Basel Committee, the mother of all the non-accountable to anyone mutual admiration clubs.

FT, what Europe needs is to stop regulators discriminating against the backbone of its economy

Sir, much of the difficulties for “small and medium enterprises which form the backbone of the eurozone economy” to access bank credit in reasonable terms, has to do with the fact that bank regulators, like Mario Draghi was, foolishly believe they can make the banks safer by requiring these to have much more capital when lending to this risky backbone than when lending to “The Infallible”.

For instance, according to Basel II, if a Spanish bank lends to an AAA to AA rated German company it needs to hold 1.6 percent in capital, but if it lends to an unrated Spanish business then it needs to hold 8 percent. If you believe that this, especially in times of bank capital scarcity, does not affect banks lending decisions, perhaps you should go back to school for a refresher. 

About this regulatory discrimination I have written you hundreds of letters over many years but which for reasons of your own,perhaps quite petty ones, you decided to ignore. Indeed, “Europe needs more creative thinking” April 8, but FT needs also to report opinions in a less discriminatory way.

I assure you Sir that when the story of my travails in convincing FT about what was going on is written, some of you will have egg on your face.

The ECB, to fix southern Europe, and to not mess up the rest more, might need to fire Mario Draghi.

Sir, Wolfgang Münchau writes about the credit crunch many small companies are facing, “The ECB´s priority should be to fix southern Europe”, April 8.

Münchau suggest that ECB, Mario Draghi, should relax collateral requirement for various classes of asset backed securities, backstop a massive lending program by the European Investment Bank to co-finance loans to small and medium sized companies, or undertake directly the purchase of corporate bonds on the primary and secondary market.

May I suggest just firing Mario Draghi and many of his other bank regulatory colleagues? I mean anyone not capable of understanding how allowing the banks to hold less capital when financing “The Infallible” than when financing “The Risky”, discriminates against the latter, especially in times of serious bank capital scarcity, is simply not capable enough to help out.

Would this make the banks more risky? Of course not! What is perceived as risky does never endanger banks, only what is perceived as absolutely safe does that.

Regulators did not trust the market and imposed their own judgments on the banks.

Sir, having Lunch with FT´s Edward Luce, April 6, Michael Sandel, when discussing his book “What Money Can’t Buy: The Moral Limits of Markets” says:“Right at the heart of the market is the idea that if two consenting adults have a deal, there is no need for others to figure out whether they valued that exchange properly. It’s the non-judgmental appeal of market reasoning that I think helped deepen its hold on public life and made it more than just an economic tool; it has elevated it into an unspoken public philosophy of everything”.

"Everything"? sorry, that is not true. Had it been, we would most certainly not be having the current crisis. You see the bank regulators, they did not trust the deals the consenting adult of bankers and borrowers did, and so they imposed their own judgments.

To make sure there was not too much risk-taking going on, they designed capital requirements which allow banks to make a much higher expected risk-adjusted return on equity when doing business with “The Infallible”, than when engaging with “The Risky”.

And of course, under such distorted conditions, banks are overdosing on sovereigns, AAA rated constructions and what else is officially considered safe-haven, and lending too little to “risky” small businesses and entrepreneurs the real forces of the real economy.

Edward Luce most splendidly comments: “There is a thin line between promoting virtue and practicing tyranny.” And I would say that line might be crossed by even trying to define what the virtues should be.

Sir, the arrogance of bank regulators believing they could substitute for the market is just unbelievable. And Sir, excuse me for saying it, but the foolishness of so many, including FT, to believe they can, is just astonishing.

The world (Japan) does not need inflationary expectations it urgently needs more rational bank regulations

While the banks, by means of minuscule capital requirements for what is perceived as absolutely safe, are reigned in from taking on exposures to what is perceived as risky, at the same time central banks allow themselves to run extremely risky monetary experiments. Something is way wrong!

Sir, in “Japan embraces monetary change”, April 5, you hold that though “an impressive package of quantitative easing… may have adverse consequences… there was no alternative.

Wrong! More than anything Japan, UK and all other Basel Committee subjects too, need to rid themselves from silly bank regulations which favor “The Infallible” and therefore discriminate against “The Risky”. Get a grip on yourselves! In the real economy, what is absolutely absent is what is “absolutely safe”.

Any quantitative easing, keeping these regulations in place, only doom the banks to dangerously overpopulate whatever is perceived as “safe havens”, holding too little capital, and thereby making the world a much more riskier place.

Current capital requirements for banks represent, for the risky real economy, the biggest source of deflationary bias.

Sir, Sir Samuel Brittan, in “Forget trying to change Germany – or any other country”, April 5, in reference to what in his opinions are not sufficiently expansionary fiscal and monetary policies, for instance by Germany, writes that “the whole system has a deflationary bias when the world least needs it”. 

I will not argue against that but, let me assure you that the current capital requirements for banks, which so odiously discriminate against all what is not officially perceived as absolutely safe, represents, with respect to the real economy, that in which “absolutely safe” is absolutely absent, the mother of all deflationary biases. 

And if we cannot, as Brittan holds do much about what countries do with their own fiscal and monetary policies, and need to treat those as exogenous events, accepting or not the Basel Committee nonsense, is indeed a quite endogenous decision. The only thing needed is for one or two finance ministers to ask their regulators to explain the why of those capital requirements, and then to be prepared to act decisively upon receiving  any mumbo jumbo answers.

Mr. Barney Frank, when will you help stop that odious and stupid regulatory discrimination against “The Risky”?

Sir, Barney Frank the former chair of the House financial services committee, with relation to the Dodd-Frank Act and its implementation writes “Don´t panic financial reform is coming to America” April 4.

Mr. Barney Frank, lending your support to the pillar of current bank regulations, capital requirements for banks which are much lower for assets perceived as “safe” than for assets perceived as “risky”, this even though those perceptions are cleared for by other means, you are allowing banks to earn much higher risk-adjusted returns on equity when lending to “The Infallible” than when lending to “The Risky”.

And, as a direct result, “The Risky” need pay the banks much more than usual in order to make up for this regulatory competitive disadvantage.

And, as a direct result you are guilty of helping to increase the gap between the haves, the old, the history, “The Infallible” and the have-nots, the young, the future, “The Risky”.

And all for nothing as major bank crises never ever occur as a result of excessive exposures to what is perceived as “risky”.

And so if the Congress, in the Home of the Brave, with the assistance of bank regulators, in over 124 pages of assorted regulations, cannot understand and put a stop to this favoring of the access to bank credit of those already favored, “The Infallible”, and which thereby discriminates against the access to bank credit of those perceived as “The Risky”, and who even without these regulations already have to pay more because of those perceptions, then I do indeed believe it could be time to panic.

And I say this because it is precisely in troubled times like this, with growing unemployment, that it is so important that regulators help "The Risky", like small businesses and entrepreneurs, to have access to bank credit in the best possible terms, and not to fight against that!

Bank regulators, by entitling “The Infallible”, are not behaving like good citizens, and neither is FT

Sir, in “Barclays and the entitlement culture”, April 4 you write that “banking is crucial for the functioning of the economy and banks should be good corporate citizens” and who can dispute that.

But let me again remind you, for the umpteenth time, that with their capital requirements for banks based on perceived risk, bank regulators are de-facto entitling “The Infallible” and thereby discriminating against “The Risky”, and this does not permitting banks to allocate economic resources efficiently.

And so when I compare how much FT loves to hit out at bankers, with how little it wants to criticize the bank regulators, and who should be good citizens too, you are revealing a bias that also allows us to question your good-citizen status.

There might be many reasons for wanting to feminize banks but, if it is to reduce risk-taking, then down we go!

Sir I refer to Ralph Atkins “If banks really want to be safe they should hire historians”, April 3.

Absolutely! Those historians would be able to inform you that historically the real dangers for banks have always lurked among what is perceived by the bankers to be absolutely safe, and never ever among what they perceive as risky.

Those historians might also add that one of the most important components for the nations and for their economies to develop, and move forward, is the willingness and the capacity of taking smart risks, which is the reason of course why in some churches we can hear psalms praying “God make us daring!”

Those historians might also add that there is no better way of keeping banks safe, than a sturdy and growing economy.

There might be many reasons why you would like to feminize your banks, like some of those referred to by Susan Menke in “The feminization of banking, why we need a kinder gentle banking” July 2011.

But if you want to do it in order to reduce risk-taking like the research of the Bundesbank that Atkins refers to, then you just have just had it from the very start.

In fact, even though perceived risks of bank assets are already cleared for by means of interest rate, amount of exposure and other contractual terms, bank regulators, primarily with Basel II, and following it up with Basel III, decided that those same perceptions of risk should also be reflected in the capital requirements of banks… more-risk-more-capital less-risk-less-capital.

And with that they allowed the banks to earn much higher risk adjusted expected returns on their equity on exposures to “The Infallible” than on exposures to “The Risky”.

And that, which completely ignores that smart daring risk-taking is the oxygen of any growing and sturdy economy, effectively castrated the banks and made them sing in falsetto… and down we go!

We should not go from “pseudoscientific calculation of risk-weighted assets” to Talibanesque capital requirements

Sir, currently there are many papers analyzing the impact of higher capital requirements for banks on their lending rates. Some say it will be minor, others somewhat important.

What is amazing though is that all these papers are written ignoring the fact that based on risk-weights, lower and higher capital requirements which result in differences in lending rates based solely on regulations already exist. These regulatory induced interest rate differential favor much “The Infallible” and thereby discriminate much against “The Risky”; and make it impossible for banks to allocate economic resources efficiently.

Therefore when in John Kay’s “The bungled bailouts that heralds an overdue shift in attitudes” April 4 he writes of “The combination of useless regulation, irrelevant regulations and state guarantees”, I feel I could live with all that, albeit of course much smaller and more disciplined state guarantees, as long as we could get rid of the dangerous regulations which distort.

And without those dangerous distortive regulations, the banks would not need the huge capital that some propose. Frankly ee do not need to go from one “pseudoscientific calculation of risk-weighted assets” extreme to Talibanesque capital requirements, unless of course what we really want is for private banks to disappear, taking refuge in the shadows.

PS. Why has it taken so long for Kay to call the pillar of Basel II regulations “pseudoscientific”? And why is it not in him to admit that I have been calling the Basel bluff for more than a decade now, with more than 1.000 letters to FT, like this letter to John Kay in May 2010. It is a bit petty of him, wouldn’t you say?

Current financial fragmentation is not a “north vs. south”, but an “infallible vs. risky” issue

Sir, when Michel Steen reports “Draghi faces bailout grilling” April 2, he refers to the problem of a “financial fragmentation” which has cleaved the eurozone “into two broad groups – northern countries that enjoy the official low rates and southern ones that, effectively, do not [something] known in monetary policy jargon as the impairment of its transmission mechanism”.

Forget it! This is not a south-north fragmentation. The most fundamental impairment of the financial transmission system occurred when bank regulators decided they could, for the purpose of setting capital requirements for banks, divide borrowers into “The Infallible” and “The Risky”, and all as if the banks were completely infantile and were not already taking notice of the fact that there are some borrowers riskier than others.

Fat chance Mario Draghi and ECB will be able to help “The Risky”

Sir, Ralph Atkins writes about “the challenge the ECB faces in ensuring low official interest rates feed through into lower [bank] borrowing costs, especially for job-creating small businesses in countries such as Italy and Spain”, “Blow to ECB as widening loan rates hit south" April 1.

Current bank regulations allow banks to obtain immensely higher expected risk adjusted returns on equity with assets perceived as “absolutely safe” than on assets perceived as “risky”. The “risky” must therefore pay the banks more than usual in order to make up for that competitive disadvantage in access to bank credit created by the regulators.

Mario Draghi, the ECB president, and who as Chairman of the Financial Stability Board has been closely involved with bank regulations, has never even understood how current capital requirements cause the widening of the spreads between "The Infallible” and The Risky”

And so with respect to the possibilities of the ECB successfully meeting the aforementioned challenge I can only say… Fat chance!