December 08, 2017

If bitcoin poses no threat because it’s perceived risky, why agree with regulations that hold lending to entrepreneurs is dangerous because they are risky?

Sir, I refer to your “Do not worry about bitcoin — at least not yet” December 8.

Of course while bitcoin are perceived risky they pose no major danger. What I cannot understand though is why you do not extend that same reasoning to bank regulations?

What if suddenly bitcoin holdings were suddenly in terms of safety rated AAA by credit rating agencies, and regulators allowed banks to leverage over 60 times with these? That would make these bitcoin really dangerous, as happened when Basel II allowed banks to leverage with AAA rated securities.

That leads me to comment: “A flawed blue print for reform of the Eurozone” also of December 8.

Sir, if it were up to me I would not allow any expert technocrats to come even close to any institution in the Eurozone, before having received a satisfactory answer on why their regulators want banks to hold the most capital against what is perceived as risky. As I see it, it is when something ex ante perceived very safe ex-post turns out to be very risky, that we would like our banks to hold the most of it.

For instance would you like your banks regulated by those who assigned sovereign Greece a 0% risk weights and German entrepreneurs 100% and thereby caused German banks to lend more to Greece than to their local entrepreneurs? I sure would not!