Force bank regulators to answer the question they do not dare to discuss.

Sir, Henny Sender asks: “As the disconnect between the rising prices of financial assets and the real economy continues, is it possible that even the most aggressive easing has its limits?”, “End point for runaway stocks rally comes in sight”, November 30.

The answer is… Yes! Moreover its limits have already been shown. I am sure that if the Fed only researched how much of all QEs and fiscal stimulus has translated into more bank credit to those on the margins of the real economy, and who are most in need of credit, like small businesses, entrepreneurs and start ups, they would be shocked at how little they would find.

But they won´t do that because if so they would have to ask themselves “why?” and that would lead to having to admit how seriously flawed or outright dumb the capital requirements for banks based on perceived risks are.

You see the question that the regulators dare not to discuss is:

If the perceived risks are cleared for in interest rates, size of exposure and other terms, does not re-clearing for the same perceived risk cause a serious distortion in how bank credit is allocated in the real economy?

It just compensates bankers´ love of chocolate cake (the safe) with ice cream, and their loathing of broccoli (the risky) with spinach.