July 05, 2013
Sir, Patrick Jenkins’ reports “Banks feeling bruised by new capital requirements” July 5.
Indeed banks may need to raise more capital, which will lead to reduced returns on equity, but they really have nothing to complain about, since never ever have banks been able to work with as little capital as they have been able to do during the last decade… as a result of the senseless risk weighting of their capital requirements.
If only bankers would ask themselves how much capital they would need, if they had to operate in a free market without regulations and without implicit guarantees, they would have to shut up and just count their blessings.
No, the really bruised ones, by old and new capital ratios, Basel II and III, are the small and medium businesses and entrepreneurs. Since they are unjustly perceived as “The Risky”, unjustly because they have never ever caused a bank crisis, banks are required to hold more capital when lending to them than when lending to “The Infallible”. And, as a direct consequence of that, they not only have less access to bank credit but must also pay higher comparative interest rates, than what would have been the case in the absence of regulations which discriminate against them.