July 16, 2013
Any bank regulator, looking at all history of bank crises, should be able to observe that, with the exception of outright frauds, all the crises were the result of excessive exposures to something perceived ex ante as “absolutely safe” but that ex post turned out to be very risky.
And so to allow banks to hold minimum capital (equity) against what is ex ante perceived as “absolutely safe” is sort of idiotic.
Sir, Adam Posen w rites “perhaps the new Fed chief’s main challenge will be to design and institutionalise a set of tools for targeted interventions in public and private credit markets”, “After Bernanke, make the unconventional the norm”, July 16.
If so let us pray that the Fed´s new chief is someone who understands how capital requirement regulations have produced extremely miss-targeted interventions in public and private credit markets. If not, chances are, we will all just be dug even much deeper into the hole we are in.
Mr. Posen also writes about “the more complex reality of how monetary policy is transmitted to the whole economy... In the euro area, low interest rates and commitments to government bond market intervention are failing to improve credit conditions for small and medium-sized businesses across southern Europe”.
Complex? Given the fact how current bank regulations discriminate against small and medium sized businesses, on account these being perceived as “risky” something for which they have already been discriminated for, I do not find that to be a “complex reality” but rather a quite simple result that should be expected.