May 05, 2016

The timidity of bankers is selective, and the result of the very dumb selective timidity of the regulators

Sir, Giles Wilkes writes: “Finance has become … more timid since 2009” “Short View” May 5.

Why since 2009? And “timid” is also only applicable to staying away from what is perceived as risky, because the wanting to leverage as much as possible with what is perceived, decreed or concocted as safe, is still very well alive and kicking.

The banks were instructed to be selectively timid, ever since the risk weighted capital requirements for banks were introduced. With those regulators allowed banks to earn higher risk adjusted returns on equity when financing what was deemed safe” than when financing the “risky”. And so therefore banks were given new incentives to timidly stay away even more than usual of what they already stayed away much from.

Basel II of June 2004 set the risk weight for an AAA rated asset at 20%, and for a below BB- asset at 150%. That in essence was like a nanny telling the kids to stay away from ugly and foul smelling individuals, and embrace much more those nice looking gentlemen who offer them candy.

Yes Sir, that is the kind of bank regulators we have. Holy moly!

And Sir, seemingly, you don’t mind them. Holy moly!

@PerKurowski ©