Gideon Rachman, on our current front of bank regulations in Basel, neither Sarajevo nor Munich mentalities will do.

Sir I refer to Gideon Rachman’s “Time to think more about Sarajevo, less about Munich” January 7.

Right now our banking systems are heading towards a meltdown, caused by excessive and dangerous exposures to what is perceived as safe assets and which therefore allow banks to hold less capital… and, consequentially, our real economy is not capable of helping us out, as its more “risky” participants, are not provided with the bank credits they need for some of them to turn into the saviors of tomorrow.

Rachman quotes Margaret MacMillan in “The War the Ended Peace” lamenting that “none of the key players in 1914 were great an imaginative leaders who had the courage to stand out against the pressures building for war”; and writes that “In 1914 national leaders were so keen to appear strong and to protect their ‘credibility’, that they were unable to step back from the brink of conflict.”

In contrast, in 1938, I guess the problem was that leaders held that everything was fine and dandy.

So Rachman what shall we do? Trust the Sarajevo regulators who arrogantly hold they can fight any bank risks which come up, or trust the Munich regulators who tell us that Basel III has repaired Basel II.

As I see it, neither one will do.