Mark Carney's worries over financial risks, are influencing the results of BoE’s monetary policy.

Sir, Martin Wolf writes: “Worries over financial risks are legitimate. But they must not determine monetary policy” “Carney is right not to follow in the Fed’s footsteps” January 21.

But worries over financial risks have influenced the results of monetary policy for quite some time now, but few seem to care.

The credit risk weighted capital requirements that allow banks to earn higher risk adjusted returns on equity on assets perceived as safe than on assets perceived as risky, act like hidden capital controls, and clearly distorts the allocation of bank credit to the real economy, favoring The Safe and discriminating against The Risky. And, as a result, the benefits of the low interest rates that are here discussed flow much more to “The Safe” than to “The Risky”.

Current bank regulations reflect the belief that for instance ‘highly speculative’ below BB- rated assets, is far more dangerous to the bank system than the ‘prime’ AAA rated. I find that to be a crazy notion. But, since Mark Carney, chair of the Financial Stability Board and Martin Wolf seems to agree that it is so, I must confess being a bit at loss when it comes to value their recommendations.

@PerKurowski ©