June 09, 2015

Allocation of bank credit driven excessively by credit risk, does not lead to better growth and employment.

Sir, Mohamed El-Erian writes: “Since the global financial crisis, central banks have repeatedly resorted to experimental measures to repress market volatility — not as an end in itself but, rather, to help heal balance sheets and encourage the type of economic and financial risk-taking that can lead to better growth and employment outcomes.” “Central banks opt for the tug-of-war rather than the see-saw” June 9.

Not so! Credit allocation that is driven by credit-risk-weighted capital requirements for banks cannot produce “the type of economic and financial risk-taking that can lead to better growth and employment outcomes”. And clearly central banks have unwittingly (lets pray) or knowingly turned a blind eye to that.

@PerKurowski