January 14, 2016

Bank regulators distorted and unleveled the access to bank credit playing field

Sir, Shamit Saggar, a former Non-Executive Director of the Financial Service Authority (1998-2004) writes: “Regulators cannot avoid getting involved: their role is to level the playing field” “Regulators must keep banking culture in check” January 14.

Exactly! But then he should explain to us why he kept mum when regulators, by means of credit risk weighted capital requirements for banks, unleveled the whole playing field.

They allowed banks to leverage much more with loans to those perceived or deemed as safe, than with loans to those perceived as risky; which meant banks would earn higher risk adjusted returns on exposures to those perceived or deemed as safe, than to those perceived as risky.

And so “The Safe”, like the sovereigns and the AAArisktocracy, got much easier and cheaper access to bank credit than usual; while the Risky, SMEs and entrepreneurs, had to face much lesser and more expensive bank credit than usual.

Mr. Saggar, like so many others of his regulatory colleagues, should be ashamed of what he allowed to happen on his watch.

@PerKurowski ©