September 24, 2014

It is better to have capital requirements for banks based on clean growth and jobs than on credit risks.

Sir, Martin Wolf writes: “Clean growth is a safe bet in the climate casino”, September 24.

Indeed, and that is why I have for years argued that it would be so much better if the capital requirements for banks were based on sustainability or clean growth ratings (or potential for job creating ratings), instead of on credit risks which should be cleared for by banks with interest rates and size of exposures.

I mean, if regulators absolutely must distort the allocation of bank credit in order to show us they are working, it would be so much better if they did so with a purpose.

You might argue that credit risk weighting has the purpose of bringing stability to the banks. Forget it! Only a sturdy and growing real economy can bring real long lasting stability to banks… it is NOT the other way round.

I can partly understand bank-navel-gazing regulators not seeing that, but it is truly sad when economists like Martin Wolf do not get it.