March 16, 2016

Sir, here’s what I would have told young Martin Wolf 40 years ago at the World Bank on India, had I been his boss

Sir, Martin Wolf covers a lot of terrain in his: “India’s growth is a light in a gloomy world” March 16.

He must surely have more knowledge about India than I so I have nothing to argue against his opinions.

BUT! At one point he writes “Markets for land, labour and capital are all highly distorted” and he also informs us “Forty years ago I worked on the Indian economy for the World Bank.”

Which brings me back to my obsession against the distortions in the allocation of credit produced by the risk-weighted capital requirements for banks, which Wolf so firmly has decided to ignore.

Let me be clear, if I had been Wolf’s boss 40 years ago, and if the banks of the world had then also been suffering the Basel Committee’s risk adverseness, I would have sat him down and firmly told him the following.

Listen young man. We represent the world’s premier development bank and so we know that true risk-taking is the oxygen of any development.

Wolf might have asked “True-risk-taking Sir?”

Yes. I do not refer to those risks that derive from building up excessive and dangerous exposures to what is “safe”… which is what the very low risk weights and resulting lower capital requirements for banks for what is perceived as safe currently does.

I refer to taking much, albeit low exposure risks on the risky, like lending to SMEs and entrepreneurs, something that is currently hindered by the higher risk weights and resulting higher capital requirements for banks for what is perceived as “risky”.

So young Martin, if you really want to help India, tell them to ignore the silly aversion against risk imposed by some developed countries’ bank regulators, who on their own decided they should not dare to climb more. Remind those in India that they cannot afford such nonsense. They owe their people the chance of much risky climbing.

And Sir, don’t ask me what steps I would have taken if young Martin had then ignored me J

PS. Here is the document I presented at the High-level Dialogue on Financing for Developing at the United Nations, New York, October 2007, and titled “Are the bank regulations coming from Basle good for development?” It was also reproduced in The Icfai University Journal of Banking Law Vol. VI No.4, India, October 2008

@PerKurowski ©