December 06, 2016
Sir, with respect to Italian bank securities, like Monte dei Paschi di Siena’s €6bn of junior bonds, Patrick Jenkins writes that “it was the banks — not the state — that mis-sold these”, “Italian state must act as backstop to bolster ailing banking system” December 6.
Why on earth does Jenkins’, and you all, defend in such a way the innocence of the state, or more precisely, that of the bank-regulating establishment? Had regulators no responsibility towards the buyers of these bonds? No Sir, I tell you FT has no role washing the hands of the regulators.
First, what got banks into problems, were that regulators allowed banks to hold very low capital against what was perceived as safe. Though of course much of what could have been perceived as risky has suffered a lot after the crisis, nothing of that detonated it. And, if what was perceived ex ante as “safe” would have required banks to hold the same capital as against what was perceived as risky, the overall crisis would not have happened, or would have been much smaller.
Second, don’t tell me that regulators, with their reports on satisfactory levels of capital against risk weighted assets, have not been misinforming the markets all the time, and not only in Italy. Time after time we read or hear “experts” comparing bank capitalizations in the past against all assets, with capitalizations in the present against weighted assets. And that is apples and oranges of course.