October 20, 2016
Sir, Alberto Gallo writes: “At the heart of Britain’s problems is its unbalanced growth model, centred on London and financial services, a lack of investment in sectors that boost productivity rather than asset prices, and the resulting inequality… Britain needs a plan to re-engineer its growth model” “UK must rebalance growth model to steer past Brexit iceberg” October 20
That is a very clear definition of the problem. Unfortunately, among the proposed solutions, Gallo leaves out what needs to happen with bank regulations.
In short, for the umpteenth time, the risk weighted capital requirements for banks hinder these from financing the riskier future, having them only refinancing the safer past. The risk weights of 0% the sovereign, 20% the AAArisktocracy, 35% residential housing and 100% unrated SMEs and entrepreneurs shouts out what is wrong… unfortunately too many, FT included, are blind or deaf.
Unless Britain eliminates the distortions in bank regulations that work against productivity it is doomed to like old soldiers to slowly fade away… living up, little by little, all its past economic achievements.