November 05, 2015

The only bank credit-allocation taking place, in UK and China, is based on credit risk weighted capital requirements

Sir, David Pilling when writing about deregulation of bank interest rates opines that: “China now needs a better allocation of capital. It needs less money to be pushed into heavy industry, and more into services and innovative industries, many of them outside state control.” “Beijing cannot control babies or banks” November 5.

No Mr. Pilling, as long as China follows the dictates of the Basel Committee, as seemingly it does, that type of “better allocation” of bank credit does not exist. With the credit risk weighted capital requirements, the only real allocation, or more correct misallocation of bank credit that exists, is favoring what is perceived as safe and hindering the access to bank credit of what is perceived as risky. And of course that applies to UK too.

And Pilling also mentions: “Ending financial repression is an important step in the right direction”

No Mr. Pilling. The real financial repression, the one resulting from favoring with ultra low or no capital requirements for banks when holding assets of sovereigns, and which started in 1988 with the Basel Accord, is alive and kicking, even in your UK.

PS. What the Basel Committee has done is not much different from China trying to control babies.

@PerKurowski ©