ECB’s Mario Draghi, regulating in favor of the old and against the young, should be ashamed of mentioning demographics.

Sir, Claire Jones reports “Mario Draghi, European Central Bank president, has stepped up calls for the region’s leaders to press on with reforms to create more jobs and help save a crisis of ageing in the Eurozone. Among what to do he recommends “a financial system that channels capital to dynamic firms” “Draghi urges action to offset ageing threat to eurozone”, June 10.

He should be ashamed. As the former chair of the Financial Stability Board and the current chair of the Group of Governors and Heads of Supervision of the Basel Committee for Banking Supervision, he is as responsible as anyone for current bank regulations. And these regulations, with their risk credit weighted capital requirements, are designed as if to meet the investment criteria of the very old, and to guard against the “dangerous” risk-taking needed to build a future.

An AAA to AA rated corporation has been assigned a risk weight of 20%, the A+ to A- rated carry a risk weight of 50%, while the unrated citizens and the BBB+ to BB- rated are assigned a risks weight of 100%. How on earth can such distortions of the allocation of bank credit based on credit risk help to make an economy to be dynamic? On the contrary, it makes sure the safer past is more refinanced while the financing needs of the riskier future are not served.

That current regulators, like Draghi, have no idea of what they are doing is further evidenced by the fact that those rated below BB-, the group least likely to which banks could ex ante create excessive exposures that could put in danger the bank system, they have a risk weight of 150%.

Sir, if Mario Draghi wants to offset the ageing threat to the eurozone then he should push for the elimination of these regulations.

@PerKurowski ©