October 26, 2013

Americans who sing about their “Home of the brave”, are clueless about what their bank regulators are up to

Sir in “A superpower at risk of slippage” October 26 you so correctly write “History is littered with solid objects – and risk-less assets – that have melted into thin air.” And yet, you keep mum about the fact that your own banks are allowed to hold exposures against minimal capital, sometimes even zero, only because these assets are perceived, by fallible humans, as “risk-less assets”.

But, if anything puts a superpower at the risk of slippage, that is when a superpower starts fretting more about what it has than about what it can get. And that happens when for instance it accepts regulations that basically instruct their banks to stop financing the “risky” future and concentrate on refinancing the “safer” past. Like what is done by means of the Basel Committee’s and the Financial Stability Board silly capital requirements based on ex ante perceived risk.

God make us daring!