April 20, 2015

Britain’s Royal Statistical Society, for our sake, please give also bank regulators a course in statistics.

Sir, Anjana Ahuja reports that “Britain’s Royal Statistical Society has launched the #ParliamentCounts campaign, offering all MPs a free training course in statistics”, “Our collective innumeracy adds up to a big problem”, April 20.

What a marvelous initiative. I just hope they could follow it up with a similar course for our bank regulators. I say this because the regulators, while trying to make our banks safer by setting their risk-weighted equity requirements for banks, have been looking at the completely wrong series of statistics. Instead of looking at why banks failed, they have been looking at the risks of bank assets, how bank clients fail, and all of us who have some basic knowledge about statistics know very well that c'est pas la même chose.

That lack of elemental statistical knowledge caused bank regulators to set higher bank equity requirements against assets perceived as “risky” when in fact, what is truly dangerous for banks, have always been assets erroneously perceived as absolutely safe.

PS. April 21 I send the Members of the Royal Statistical Society a letter requesting an urgent Statistical Literacy Initiative