June 17, 2018

FT, that what is perceived risky is as dangerous to banks than what is perceived as safe, is not a “roughly right analysis”

Sir, you write: “The world may not return to what was normal before the global financial crisis… Still, consumers, investors and businesses should take some comfort that the central banks of the world’s biggest market economies have roughly the right analysis of where they are and how they might react in a downturn.” “Central banks correctly go their separate ways” June 16.

No way! With their continuous support of the risk weighted capital requirements for banks, central bankers evidence they have not understood “where they are know”. They are not “roughly right” but totally wrong. What can generate those excessive exposures that can endanger bank systems is not what is ex ante perceived as risky, but what is ex ante perceived as safe. 

Certainly central bankers the regulators did not commit this mistake on purpose, but the fact remains that they have produced much suffering; just think what their 0% risk weighting did to Greece. To hold then somewhat accountable, should we parade them down the D.C. Mall wearing dunce caps?