July 22, 2016
Sir, while discussing some possibly very shady FX operations, you correctly suggest that “the whole banking industry should take a long hard look at the incentives it dangles before traders” “HSBC case is another blow for trust in banks”, July 22.
But, why do you so steadfastly refuse to take a long hard look at the incentives the regulators dangle before banks?
By allowing banks to hold less capital against what is perceived decreed or concocted as safe than against what is perceived risky, banks can leverage more their equity, and the support they receive from the society, with the “safe” than with the “risky”.
And that incentive means banks can expect higher risk adjusted returns on what’s “safe” than on what’s “risky.
And so that incentive means banks will lend too easily to what’s safe and too little to what’s “risky”
And so because of that incentive the “safe-havens”, like lending to the sovereigns, the AAArisktocracy and financing houses will, sooner or later, become overpopulated, and therefore very risky.
And so because of that incentive the “risky-bays”, like SMEs and entrepreneurs, will be less explored and, in order to compensate for the discrimination, will have to pay more for credit, which makes these riskier yet.
And so because of that incentive, today billions in bank credit will be awarded in too favorable terms to those who do not deserve it, and thousands of SMEs and entrepreneurs will see their applications refused.
And so because of that incentive the real economy is mostly fed with carbs that makes it obese, and does not receive enough proteins to remain muscular.
Sir, what incentives do someone dangle before FT to have FT being so mum about these so horrible incentives that so distort the allocation of bank credit to the real economy… and all for nothing!