September 29, 2016
Sir, Gillian Tett writes: “If bankers are going to defend their craft, let alone their high pay, they have to start truly sharing risks with shareholders and taxpayers…If clawbacks had been in place a decade ago, those scandals at Deutsche and Wells might never have erupted in the first place.” “Clawbacks emerge as a vital weapon in finance” September 30.
That applies to regulators too.
The Basel Committee neglected to define the purpose of the banks before regulating these and so came up with the risk weighted capital requirements for banks that have so distorted the allocation of bank credit to the real economy.
The Basel Committee also neglected to do the empirical studies to determine what cause bank crises and so placed much higher risk weights on what was perceived as safe, when actually all crises have resulted from unexpected events like natural disasters, illegal behavior like lending to affiliates, or excessive exposures to what was erroneously perceived as very safe.
The results? A banking crisis because of excessive exposures against too little capital to what was perceived, decreed or concocted as safe; and economic stagnation resulting from too little financing to the “risky” SMEs and entrepreneurs.
Is that not an amazing fiduciary negligence that merits, as a minimum minimorum. some claw-backs?
PS. And all those journalists and famed columnists that so blithely ignored the regulatory faults when denounced over and over again, should they go scot-free?