December 14, 2016

Mark Carney, as bank regulator, has no right to talk about an “unprecedented desire for safety”

Chris Giles writes: Mark Carney, governor of the Bank of England, talks about an “unprecedented desire for safety”. “Fed faces dilemma over how high rates should go” December 14.

Hah! Mark Carney is one of those regulators who set the capital requirements for banks based on ex ante perceived risks, and if that’s not an unprecedented run amok desire for safety, what is? Current bank regulators have not failed somewhat, they have failed in such a fundamental way that they should never ever be allowed to even get close to banks again.

Bankers perceive risk, and the more risk they see, the less they lend, and the higher the interest they charge… and yet regulators, if they also perceived more risk, also wanted banks to hold more capital… and so the ex ante perceived risks became excessively considered.

With the Basel Committee’s goggles, the safe seems safer, the risky riskier and the allocation of bank credit to the real economy goes bananas.