September 22, 2015
Sir, George Magnus discussing the increase of interest rates writes: “If the Fed continued with financial market stability as the leitmotif of policymaking, a later more disruptive policy adjustment and greater instability are the all too likely outcomes” “Fed should start making clear it faces difficult trade-offs” September 22.
I agree but before thinking of increasing rates, the Fed must make certain it tears down the regulatory Basel Committee wall that is keeping SMEs and entrepreneurs from gaining fair access to bank credit. The zero rates the Fed and other have been experimenting with the last seven years have not been able to reach the risky because of credit-risk weighted capital requirements. To increase interest rates, before eliminating this Maginot line built by the Basel Committee so stupidly where the passing was already difficult, would really be to leverage the difficulties of the real economy even more.
And it is all really about picking some low hanging fruit because, though some individual banks might have suffered, never ever has a major bank crisis been caused by excessive exposures to what is perceived as risky.
Few can inject so much vitality into a sagging economy as the tough we need to get going when the going gets tough, like the SMEs and entrepreneurs. And so therefore, if I was the Fed, I would immediately make sure that banks were not obliged to hold one cent more of capital than what they already hold against all assets, if they lend to risky SMEs and entrepreneurs.
The zero rates the Fed and other have been experimenting with the last seven years have not been able to reach those perceived as risky. To increase interest rates before eliminating any silly regulatory barrier, amounts to an assassination.