I agree 100 percent with Christian Clausen of Nordea, in his description of 50 percent of the problem with SMEs and bank capital/equity.

Sir, I refer to Richard Milne’s “Tide of regulation has gone so far it means unacceptably high premium for SME borrowers” November 17.

In there Christian Clausen, chief executive of Nordea and president of the European Banking Federation, is quoted saying: “Ever-increasing capital demands of regulators meant banks needed to charge a margin of 6-7 percentage points to small and medium-sized enterprises (SMEs), companies which are often seen as the backbone of the EU economy. Show me an SME that can do a business case on opening a new factory or doing an investment where they can start by absorbing 600-700 basis points on margin. In this environment, it’s not possible."

And Clausen asks: "Don’t you want to allocate risk capital to the young entrepreneurs and the companies that can grow and export and create jobs? We have gone too far. Why on earth as a politician do you want to allocate the limited amount of risk capital in your society more than necessary to the banking sector? Don’t you want to allocate risk capital to the young entrepreneurs and the companies that can grow and export and create jobs? We will not create more jobs by piling up more capital, we will create negative growth because our lending costs will go up.”

Absolutely, Clausen is 100 percent correct, but unfortunately that is only in 50 percent of the story.

The other 50 percent is: Why would bank regulators require banks to have more capital when lending to SME’s, the backbone of the economy, than when lending to for instance those who possess an AAA rating or lending to an “infallible sovereign”.

Is it not so that much of the higher margin banks now need to charge SME is a direct result of the low margins they charge when lending to the “absolutely safe” because these are subsidized by the very low capital requirements that then apply?

My rephrased Clausen questions would be: Why on earth as a politician do you want banks to consume more of the limited amount of bank risk capital in your society when lending to the risky that when lending to the safe? Do you really want to discriminate against the fair access to bank credit of the young entrepreneurs and the companies that can grow and export and create jobs?

​Do you really want your banks financing the riskier future settling instead for refinancing the safer-past?

Sir, for the real economy, a stress test of banks, which analyzes only what is on the banks’ balance sheets, and ignores what should have been on these, is a useless test.

PS. Yesterday in church I was reminded of the “The Parable of the Talents”. It would do us much good if bank regulators read Matthew 25:14-30