May 02, 2016

The real beasts in banking are the regulators who believe they can manage bank risks from their desks in Basel

Sir, Brooke Masters reviews Tony Norfield’s “The City: London and Global Power of Finance” “Banking as seen from the belly of the beast”.

Masters writes that Norfield “seeks to document just how the UK and the US extract their pound of flesh from the rest of the world by dominating the financial flows that make international trade possible”.

And again I must ask: Who dominates more the financial flows in the world, the banks or those regulators who tell banks to lend to the infallible sovereign, the AAArisktocracy and housing but not to the risky SMEs and entrepreneurs. Because that is what bank regulators do with their credit-risk-weighted-portfolio-invariant capital requirements for banks.

Masters writes that Norfield “Mostly reserves his scorn for politicians who seek to distinguish between worthy industrial capitalists and bad bankers.”

I have not read the book yet, so I am not absolutely sure of its meaning, but one thing I am sure off: I reserve my deepest scorn to those regulators who, with such hubris, feel themselves capable of discerning and managing the bank credit risks for the world.

They are so incredibly dumb. Imagine, in order to make the banking system safer, with Basel II they placed a risk weight of only 20% on AAA rated assets and one of 150% for below BB- rated assets. As if below BB- rated assets could generate such excessive exposures so as to be a threat to any banking system.

They are so incredibly dumb they do not even define the purpose of the banks before regulating these.

PS. I once heard a very important regulator, with respect to some bankers objecting part of the regulations with scorn express: “If they do not want to be bankers, let them be shoe shiners instead”

@PerKurowski ©