July 04, 2018

Jesus said, “Put out in the deep”. Regulators tell banks “Fish in shallow waters… preferably from the shore”

Sir, Martin Wolf writes, “Mr Trump’s narrowly transactional approach, driven by ignorance and resentment, risks disaster” “Donald Trump’s war on the liberal world order” July 3.

I agree there is room for serious concern with respect to what President Trump might do but, for the time being, for the umpteenth time, much more than what he might be sabotaging the liberal world order, bank regulators already did.

This Sunday, in the Swedish church in New York, they read us how Jesus invited the Apostles to "put out into the deep" for a catch: "Duc in altum" (Lk 5:4). "When they had done this, they caught a great number of fish" (Lk 5:6).

With their risk weighted capital requirements for banks, more perceived risk, more capital – less perceived risk, less capital, the regulators de facto told our banks to fish in shallow waters… preferably from the shore.

To assign a 20% risk weight to a corporation rated AAA to AA, and 100% to an unrated corporation 100%, and "generously" permitting the possibility of risk weighing small entrepreneurs with only 75%, has absolutely nothing to do with a liberal world order.

Moreover to assign a 0% risk weight to sovereigns and one of 100% to citizens, reads just like a communist world order.

“Armoured by ignorance”? Indeed, those regulations guarantee excessive exposures to what is especially dangerous as it is perceived, decreed or concocted as safe; against especially little capital… in other words it dooms our banks to especially severe crises.

Good job Basel Committee!