May 27, 2015

Martin Wolf, besides our bankers, do we not have to trust our bank regulators too? I sure don’t.

Sir, Martin Wolf writes: “morality matters. As Prof Luigi Zingales argues, if those who go into finance are encouraged to believe they are entitled to do whatever they can get away with, trust will break down. It is very costly to police markets riddled with conflicts of interest and asymmetric information. We do not, by and large, police doctors in this way because we trust them. We need to be able to trust financiers in much the same way.” “Why finance is too much of a good thing” May 27.

But, do we not need to be able to trust our bank regulators too? I certainly don’t!

Anyone setting the weight for the capital (equity) requirements for banks when lending to government at 0%, and at 100% when lending to SMEs, must know that means that banks will lend more and at lower relative rates to the government than to SMEs. And that de facto means they believe that government bureaucrats are more productive using bank credit than SMEs.

Well, I refuse to believe that. I believe that if you believe something like that, you are either extremely dumb or a communist… in either case you’re not trustworthy.