The Basel Committee and the Financial Stability Board have also some questions of ethics they should grapple with.

Sir, if a boy listens to the weatherman, and dresses up accordingly, but then comes his mommy and, having listened to the same weatherman, and ignoring what clothing the boy already has on, orders him to put on or take off additional layers of clothes, you can bet that boy will end up having too much or too little on, even if the weatherman turns out to be absolutely right about his forecast. And of course, and especially if the weatherman was wrong, as happens sometime, real tragedy could ensue with the boy dying from either excessive cold or heat.

That is precisely what happens when regulators, ignoring how banks have adjusted to the perceived risk of the asset through interest rates, size of exposure, duration and other terms, order banks to also adjust for the same perceived risk in the capital they are required to hold. 

Even if the risks have been perfectly perceived, the bank will as a consequence lend too much in too generous terms to those perceived as “absolutely safe” and too little in too harsh terms, to those perceived as “risky”. The introduction of this regulatory distortion puts both the banks and the real economy at serious risk.

And artificially favoring the borrowings of some bank clients over others, just to satisfy I do not what, is a highly unethical to do. And so Sir, in reference to Andrew Hill´s “Bankers grapple with question of ethics” December 9, I wonder if Dan Ostergaard, the managing partner of Integrity By Design and who is mentioned as advising on ethical training, might have a program for the Basel Committee for Banking Supervision and the Financial Stability Board. If not it seems urgently needed.

By the way it might also have to do with ethics when financial journalists refuse to make any reference to this regulatory distortion, for reasons of their own. Think of it, “Five years on, Lehman still haunts us” and the fact that it was the extremely low capital requirements allowed by the SEC to the investment banks under their supervision, when holding AAA rated securities, that most tempted Lehman into perdition, is not even discussed.