Could Gillian Tett possibly find something positive in removing the incentives for banks to lend to SMEs and entrepreneurs?

Sir, Gillian Tett, discussing whether to have or not to have bins, as these could be used by terrorists writes: “Losing them shows …– that trust and confidence can unravel in the face of terrorism and fear. Indeed, the symbolism is so stark that I am tempted to argue that it is a mistake to “give in” by removing those bins; in statistical terms, the risk of actually dying in a terrorist bomb attack is exceptionally small.” “Don’t throw our bins away” September 24. 

Well, the risk of having a bank crisis resulting from excessive exposures to what was ex ante perceived as risky, is exceptionally small, I would say none. Yet bank regulators clearly gave in to some imagined fear and decided the capital requirements for banks should be much higher for what is perceived as risky, than for what is much more dangerous, namely what is perceived as safe. 

And contrary to how Ms. Tett might find something positive in the removal of bins, and which with one could agree, I cannot understand what positive one could possibly find in removing the incentives for banks giving loans to “risky” SMEs and entrepreneurs; those who in fact most need bank credit; those who we in fact most want to have bank credit, so that our economies do not stall and fall. 

Perhaps Ms. Tett would be interested in reading a recent working paper published by the ECB, “The limits of model-based regulation”. It shows that some of those who like Ms. Tett with close to willful blindness trusted Basel’s risk based regulations, are now reluctantly beginning to have some serious doubts. 

@PerKurowski ©