July 23, 2018

If only the Basel Committee of Banking Supervision ‘Swallowed the brave pill’

Currently regulators, by means of lower capital requirements, give banks incentives to build up large exposures on what is perceived, decreed or concocted as safe, like house financing, sovereigns like Greece and AAA rated securities. That is like feeding our banks carbs only, something which makes our bank system obese.

As a result those perceived as risky, like SMEs and entrepreneurs, and who are so important for the future of the economy, are also kept on an anorexic credit diet. 

That is all because regulators, even if banks with size of exposure and risk premiums already clear credit risk, are, quite infantile I would say, more concerned with the risks perceived ex ante than with what could happen ex post. Had they not been so, they would have long time ago realized that what puts our bank system in danger of major crisis, is never what is perceived ex ante as risky, but always what has been wrongly perceived as safe.

Wouldn’t it be nice Thomas Davies helped those regulators to “swallow a brave pill” in order to get over their affliction that so much hurts us? Then our bank system would be safer and our economies stronger.