March 07, 2018

The Basel Committee’s tariffs of 35% risk weight on residential mortgages and 100% on loans to entrepreneurs, is pure protectionism.

Sir, Martin Wolf, with respect to President Trumps’ indication that “he would sign an order this week imposing global tariffs of 25 per cent on steel and 10 per cent on aluminum” writes “This is a purely protectionist policy aimed at saving old industries” “Trump’s follies presage more protectionism” March7.

Absolutely! I could not agree more. But what I cannot understand is why Wolf does not react in the same way against the protectionism imbedded in the bank regulators’ risk weights? For instance is not a 35% risk weight on residential mortgages and of 100% risk weight on loans to entrepreneurs represent even a worse protectionism than Trump’s?

That protectionism allows banks to leverage their capital 35.7 times with residential mortgages and only 12.5 times with loans to entrepreneurs.

That protectionism has banks avoiding financing the "riskier" future in order to refinance the older "safer present". Does that not sound extremely dangerous?

PS. And a 0% risk weight of the sovereign and 100% the citizens, is that not the mother of protection of statism?