November 01, 2017

If the west insists on autocratic regulatory intervention of its banks, then it is not much different from China

Sir, Martin Wolf writes: “The west let its financial system run aground in a huge financial crisis. It has persistently under-invested in its future. The west needs rejuvenation. It cannot rejuvenate by copying the drift towards autocracy of far too much of today’s world. It must not abandon its core values, but make them live, once again. It must create more inclusive and dynamic economies” “The challenge of Xi’s Leninist autocracy

Indeed, but what that west in which we used to sing psalms like “God make us daring” has done, is to allow autocratic regulators, with their risk weighted capital requirements for banks, to put the natural risk aversion of our bankers on steroids.

If we do not allow our banks to compete freely without this type of autocratic intervention we are not that different from China.

Sir, frankly, does the west really need to allow its banks to earn higher risk adjusted returns on equity when lending to sovereigns, or to AAA rated, or on house mortgages, than when lending to its SMEs and entrepreneurs? I would have to say “NO!”