October 20, 2016
Sir, Rachel Sanderson writes: “Competitiveness has improved… Last year Italy climbed nine places in the World Bank’s “ease of doing business” rankings”, “Italy’s business chiefs buckle up for a shock as reform vote looms” October 20.
That World Bank report, great in many ways, with respect to “getting credit” does unfortunately omit considering whether bank regulations distort the access to bank credit or not.
And so the real main-street value of any recorded “ease of doing business” improvements can come to naught, if, for instance SMEs and entrepreneurs do not have fair access to bank credit; something which they don’t have in Italy, or in any other country that has been smitten by the Basel Committee’s dangerous and foolish risk aversion.
The pillar of current bank regulations is the risk weighted capital requirements. It allows banks to leverage their equity and the support they receive from society differently depending on the ex ante perceived risk. Less risk, more leverage, higher risk adjusted returns on equity.
So the following risk weights should suffice to understand what is going on… that is if you want to understand.
Risk weights: Sovereign 0%, AAArisktocracy 20%, residential housing 35% and the unrated “risky” SMEs and entrepreneurs, the fundamental drivers of the economy, 100%. What more could I say? Perhaps reminding anyone interested that no major bank crisis ever has been caused by excessive exposures to something that was ex ante perceived risky when booked.
Had these regulation been in place when banks originally began to operate in Italy, none of them, and neither the economies, could have developed as they have. 600 years of real banking and soon 30 years of loony Basel Committee reigned banking. Italia capisce?