September 26, 2016

The absurdity of Mario Draghi’s leadership is even worse when considering his close connection to bank regulations

Sir, Wolfgang Kuhn writes: “Mario Draghi, the president of the European Central Bank, relies on bank lending to stimulate the economy but criticises “an excess of eurozone lenders” (“Draghi blames ‘over-banking’ for low profits”, September 23). He worries about systemic risks of big financial institutions but he wants to get rid of small ones.” “Draghi’s leadership is a cause for concern” September 26.

Indeed, but let us try to understand Mario Draghi. Besides being the president of ECB he was once the chair of the Financial Stability Board and is the current chair of the Group of Governors and Heads of Supervision of the Basel Committee for Banking Supervision.

So, with his bank regulator hat on, Draghi might think that if the whole banking system was reduced to some few Too Big To Fail banks, then his troubles would be over.

Jest aside, Draghi’s close link to bank regulations makes it even so much worse. Draghi should know that the risk weighted capital requirements for banks stops bank credit from being allocated efficiently to the real economy, and that is probably the greatest absurdity with him. He injects liquidity, and then he stops it from reaching “the risky”, like SMEs and entrepreneurs.

I don’t know why, but in the case of Mario Draghi (and other regulators) I often get the feeling that some Jerzy Kosinski - Being There - Chauncey Gardener - Chance the gardener characters, have somehow managed to infiltrate the higher spheres of finance.  They are walking systemic risks!