July 27, 2016
Sir, Anne-Sylvaine Chassany tells us that “Océane, a 21-year-old Nice resident with purple hair, tattooed forearms and stretched earlobes would love to move to London and open a tattoo parlour” “A waitress with tattooed arms opens my eyes to the youth vote” July 27.
Well that would quite likely require Océane to get a bank loan. But what would Océane say if she understood that her chances of getting a loan at reasonable rates, which might never have been that great to begin with, are now much smaller, because of the regulators.
The risk-weighted capital requirements favors the lending to what is perceived, decreed or concocted as safe, that which always have had ample access to bank credit, over the lending to the risky… and by favoring it unfairly discriminates against the access to bank credit of those ex ante perceived as risky.
One day, some researcher will calculate the number of loan applications by SMEs and entrepreneurs that have been denied, or approved at much higher interest rates, as a direct consequence of these regulations. When those figures are published and the young realize discovers that banks stopped financing their risky future, and are only now refinancing the safer past, like placing a reverse mortgage on the economy, then, as long as the young are able to look up from their iPads, all hell could and should break lose.
Hear the young: “Baby-boomers why did you do that to us? The banks of your parents did take the risks needed for your future!”
And nothing can foster inequality as much as denying opportunities of fair access to credit… with “fair” meaning here, a not-distorted free-market based risk evaluation process.