October 17, 2014

FT, if “European project” includes the Basel Committee’s “risk aversion”, the Europe we knew will cease to exist

Sir, in “A dose of deregulation for EU capital markets” October 16 you hold that “Europe needs to be weaned off a damaging reliance on bank finance”

Why? Of course, let a 1000 finance sources bloom, but, if that is going to, one way or another, stand in the way of Europe once again being able to rely on its banks, then that is plain stupid.

And also when you write: “Poor lending decisions and Europe’s long economic malaise have left banks with damaged balance sheets. In a harsher regulatory environment, they have few resources and little inclination to lend to smaller companies”, it forces me to ask: Why Sir, do you insist on bending the truth? What intentions do you have doing so?

It is absolutely clear that all the poor lending decisions of banks were a consequence of poor regulations that gave banks incentives to expose themselves tremendously to what, from a credit risk point of view, was perceived ex ante as “absolutely safe”… and to stay away from the “risky” smaller companies. And that is still going on.

In the same vein of distortions you write: “Having seen during the sub-prime credit boom how deregulated finance can become a source of destabilizing complexity, regulators should agree standard templates for securitizations and bond prospectuses”

Sir, what deregulated finance are you talking about? Is allowing banks to leverage their equity 62.5 times to 1, only because an AAA credit rating is present, a deregulation? Of course it is not! It is only a very bad regulation!

Finally, and since you refer to “the spirit of the European project” let me assure you, if that project includes keeping the silly risk aversion introduced by bank regulators, there will be not much of that risk-taking Europe we knew of to speak of.