May 26, 2015

Risk weights for bank credit not used productively: for bureaucrats 0%; for SMEs 100%. And FT still wonders what went wrong?

Chris Giles and Sam Fleming write: “Economists now identify the problem of low productivity as one of the great threats to improved living standards, in rich and poor countries alike… The fact that companies have become less efficient at converting labour, buildings and machines into goods and services is beginning to trouble policy makers”, "No great shakes Weak growth turns into a problem of global proportions" May 26.

Regulator set up their credit-risk-weighted capital (equity) requirements for banks, based solely on who could most safely repay a bank loan, and not one iota based on who could best use a bank loan.

And so, as ideologues, they gave the government bureaucrats a zero percent risk-weight and an SME, or an entrepreneur, a 100 percent risk weight.

And FT, you still do not get what has gone wrong?