October 17, 2016
Sir, you quote BoE’s Mark Carney saying: “The objectives are what are set by the politicians. The policies are done by technocrats,” “Carney’s gentle reminder about BoE independence” October 17.
So let us assume that having banks perform the allocation of bank credit to the real economy as efficiently as possible, while at the same time ascertaining the stability of the banking sector, would be a reasonable objective set by the politicians. In fact I challenge you to find a politician who would dare to disagree with that objective.
But now let’s see what policies the technocrats, like Mark Carney, the current chairman of the G20s Financial Stability Board, and his colleagues on the Basel Committee have come up with.
They have imposed risk weighted capital requirements for banks that, allowing banks to leverage their equity and the implicit support these receive from society differently, based on ex ante perceived risks already cleared for, utterly distort the allocation of bank credit to the real economy.
And they designed that regulation based on the premise that what is ex ante perceived as risky is risky for the bank system, thereby completely ignoring all empirical evidences that clearly show that what’s really dangerous to the bank systems, is unexpected events and excessive exposures to what was ex ante perceived as safe but that ex post turned out to be very risky.
So the real question Sir would be: How do politician stand for such lousy technocrats?