September 07, 2016

Basel’s risk weighted capital requirements for banks, a de facto capital control, blocked bank credit globalization

Sir, Martin Wolf writes: “The financial crisis brought with it regulatory measures, many of which are bound to slow cross-border financial flows”, “The tide of globalization is turning” September 7.

Again Wolf ignores what was there before the financial crisis, namely the risk weighted capital requirements for banks. That piece of regulation favored awarding bank credit to the “safe”, the rich, houses, the developed, the government or anything else that could be perceived, decreed and concocted as safe; and thereby de facto disfavored awarding bank credit to the “risky”, the poor, job creation, the undeveloped and the non AAArisktocratic private sector.

That is an effective capital control that was bound to slow cross-border financial flows.

Before I became a sort of pariah to FT, in a published letter of November 2004, I wrote, “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world.”

And in 2007, at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document titled “Are the Basel regulations good for development?” and which touches a lot on how the risky are discriminated.

So no Mr. Wolf, 28 years after Basel I and 12 years after Basel II, don’t try to put the blame on the crisis and Basel III.

“Globalization’s future depends on better management. Will that happen?” Alas, with media empowered opinion forming dominators like Martin Wolf, I am not optimistic.

@PerKurowski ©