September 09, 2016
Sir, Elaine Moore, with respect to ECB’s QEs writes: “From the moment the European Central Bank first announced plans to revive the eurozone economy with a mass bond-buying programme, financial markets have expected trouble. First the focus was illiquidity and mispricing — now it is scarcity”, “Mechanics exposed as debt pool starts to run dry” September 9.
How could scarcity not be? Basel II’s low risk weighted capital requirements plus Basel III’s liquidity requirements, have substantially increased the demand of banks for low 0% risk weighted sovereign debt. That together with Central Banks purchases of “safe sovereign debt”, for their own QEs, just had to create scarcity.
Now we can hear widows, orphans and pension funds ask: Where have all safe assets gone? And the answer is to banks and Central banks everyone. Indeed when will they ever learn.
The saddest part though is that, as a result of all this odious regulatory distortion, the 100% risk weighted SMEs and entrepreneurs, those who most need and could do good with bank credit, they are left out hanging dry.
Sir, if we do not finance the riskier future and only keep to refinancing the “safer” past, we’re toast… even if there is no global warming.