FT journalists. Is this really the legacy you want to leave to your children?

Not daring to ask bank regulators to explain why they've decided that what’s ex ante perceived as risky, is more dangerous ex post to our bank systems than what’s ex ante is perceived as safe

Sadly, banks must now to take on board rules that were not adjusted to what caused the crisis

Sir, Martin Arnold, your Banking Editor writes: “In the coming year, much of the alphabet soup of post-crisis financial regulation will be completed — including Basel III, IFRS 9 and Mifid II — giving the industry the most clarity for almost a decade on the rule book it must follow.” “Lenders take on board rules of a post-crisis world” December 30.

We are soon three decades after regulators in 1988 with Basel I, concocted risk weighted capital requirements for banks, and 13 years after they put these on steroids with Basel II’s risk weights of 0% for sovereigns, 20% for AAA rated, and 35% for residential mortgages. That caused irresistible temptations for banks to create excessive exposures to these “safe” assets, which resulted in the 2007/08 crisis. And yet there is almost no discussion about that monstrous regulatory mistake.

So the risk weighting is still part of the regulations; and therefore the 0% risk weighted bank exposures to sovereings keeps growing and growing; as well as is the disortion of bank credit in favor of the “safer” present and against the “riskier” future. 

In this respect if I were to title something of this sort at this moment it would be more in line of “Lenders take on board rules that have not been adjusted to the crisis and therefore guarantee a world with even larger bank crises”

The irresponsibility and lack of transparency evidenced by the members of the Basel Committee is amazing. The lack willingness of media, like the Financial Times, to pose some simple questions to these regulators, is just as incomprehensible. 

When the next bank crisis, or the next excessive exposure to something perceived as very safe blows up in our face, how will your bank editor then explain his silence on this?

PS. I could not find the link to Martin Arnold's piece.

@PerKurowski

Sadly, banks must now to take on board rules that were not adjusted to what caused the crisis.

Sir, Martin Arnold, your Banking Editor writes: “In the coming year, much of the alphabet soup of post-crisis financial regulation will be completed — including Basel III, IFRS 9 and Mifid II — giving the industry the most clarity for almost a decade on the rule book it must follow.” “Lenders take on board rules of a post-crisis world” December 30.

We are soon three decades after regulators in 1988 with Basel I, concocted risk weighted capital requirements for banks, and 13 years after they put these on steroids with Basel II’s risk weights of 0% for sovereigns, 20% for AAA rated, and 35% for residential mortgages. That caused irresistible temptations for banks to create excessive exposures to these “safe” assets, which resulted in the 2007/08 crisis. And yet there is almost no discussion about that monstrous regulatory mistake.

So the risk weighting is still part of the regulations; and therefore the 0% risk weighted bank exposures to sovereings keeps growing and growing; as well as is the disortion of bank credit in favor of the “safer” present and against the “riskier” future. 

In this respect if I were to title something of this sort at this moment it would be more in line of “Lenders take on board rules that have not been adjusted to the crisis and therefore guarantee a world with even larger bank crises”

The irresponsibility and lack of transparency evidenced by the members of the Basel Committee is amazing. The lack willingness of media, like the Financial Times, to pose some simple questions to these regulators, is just as incomprehensible. 

When the next bank crisis, or the next excessive exposure to something perceived as very safe blows up in our face, how will your bank editor then explain his silence on this?

@PerKurowski

Mr. Powell. Tear down that wall of risk weighted capital requirements that destroy bank systems and economies

Sir, Sam Fleming writes that Jeremy Stein, a Harvard academic describes Jay Powell, the newly appointed chairman of the Fed, as curious, incredibly collegial, and willing to learn. “A safe pair of hands takes over the Fed” November 4.

Sir, for the umpteenth time: All major bank crisis have resulted from unforeseen events, like major devaluations or wars, criminal behavior or excessive exposures to something that was perceived as safe when incorporated in the balance sheets of banks. Never ever from excessive banks exposures to something ex ante perceived as risky.

Therefore I pray Jay Powell is curious enough to ask the following question:

Colleagues, the standardized Basel II risk weights sets 20% for what is AAA rated and could be very dangerous; and 150% to what is below BB-, that which seems so innocous because bankers would not touch it even with a ten feet pole. Could you please explain the thinking process that supports such risk weights?

If he does, I hope Mr Powell will not be hindered by too much collegiality, so that he is able to realize that the absence of a convincing answer to that question should make him seriously suspicious of some of his colleagues. 

And if he then wants to learn something I would offer him as an appetizer offer him the following:

Mr. Powell, the future problems of the Fed (and other central banks) will be insurmountable if we persist in using risk weighted capital requirements for banks.

Credit is not flowing to where free markets offer the highest risk adjusted net margins but, since 1988, Basel I, and most specially since 2004, Basel II, it is flowing to what offers the highest risk adjusted returns on capital, something which totally distorts when banks are allowed to leverage assets differently, depending on how their risk have been perceived, decreed or concocted as safe.

And the distortions are alive and kicking in Basel III too.

That impedes the economy to realize its full potential and also does not in any way guarantee financial stability, much the contrary.

Our savvy bank loan officers have now been replaced by saddening bank equity minimizing, bonuses maximizing officers.

And for a more complete explanation I would refer Mr. Powell here

@PerKurowski

Eliminating bank failures by means of risk-weighted capital requirements, just sounded too good to be questioned.

Tim Harford discussing statistics writes: “We often pay attention to the wrong thing, scrutinising the numbers with a forensic eye without asking about what those numbers really describe. Sometimes there is no intent to deceive; there doesn’t need to be… We deceive ourselves… If we don’t understand the definition there is little point in looking at the numbers. We have fooled ourselves before we have begun.” “Where the truth lies with statistics” May 13.

Indeed and one of the reasons we fool ourselves is that what those statistics are supposed to offer us, sound so attractive that we ignore to look to closely at them.

Basel I and II offered: “In order to make your banks safe we are going to require these to hold capital based on the risks they take”. Who would say no to such an offer? It sounded so attractive that all were willing to overlook that the formulas and calculations provided had nothing to do with the failure of banks, but all to do with the failure of the clients of the banks, which of course is pas la meme chose.

The Basel II offer also included: “And if you order now, we also throw in, for free, those few experts that can expertly decide for all of us what’s risky or not, namely the credit rating agencies”

Basel III now offers: “And if you order now, we also throw in, for free, some liquidity weighted assets requirements holdings that will guarantee banks have the money available to repay when asked”

In short, because regulators offered the moon, the world was gladly disposed to accept anything, even if it would be something like going back to a geocentrically view of the world.

As long as bank regulators, even in the face of failures, are capable with such straight faces insist in that they can make our banks safe, it seems we can’t refrain from believing them. Sir, we are indeed a sorry bunch.

PS. Here are some questions that seemingly are not to be made less we must abandon our hopes that regulators know what they are doing.

@PerKurowski

Pity the Basel Committee’s small leverage ratio; it sure has to carry a lot of risks on its back.

Sir, with interest rates and size of exposure the expected credit risk is the risk most cleared for by banks. Yet bank regulators also wanted to clear for it, and imposed their expected credit-risk weighted capital requirements. That left out of consideration, at least until Basel III, all other risks, like for instance that of cyber attacks to which Gillian Tett refers to in “Hackers target the weakest links in the financial chain”. May 20.

I say “until Basel III”, because now banks are by force of a leverage ratio, to hold at least 3% of capital against all exposures to cover for any risk.

But the Financial Stability Board has also “Task Force on Climate-related Financial Disclosures” which reminds us of risks from climate change.

And then there are the risks of demographic changes; the risk that the economies do not react to stimulus; the risks that credit risks have not been correctly perceived; the risk of war; the risk of epidemics, negative interest rates, deflation… and a never-ending list of risks of expected or unexpected losses. 

And you know I have repeatedly called for banks to also hold some capital against the risk regulators have no idea about what they’re doing, a risk that has morphed into a frightening reality.

But what’s the enticement for banks to cover for these types of risks when they can leverage as much as they currently do? Very little… in the same vein that the bonuses you can pay out to bank managers, when little bank capital is required, can be very big.

What do I propose? The abandonment of all dumb credit risk weighted capital requirements, and move towards a leverage ratio of 8 to 12%. That should increase the importance of the shareholders vis-à-vis management. And that should help to generate more interest among shareholders into making sure better risk avoidance or risk preparedness takes place.

The process of implementing those changes must though be very carefully designed, so as not to worsen the current capital scarcity driven bank credit austerity.

PS. The fact Basel Committee argued that “a simple leverage ratio framework is critical and complementary to the risk-based capital framework” was already a confession of not knowing what they were doing, but that notitia criminis was foolishly ignored. 

@PerKurowski ©

It would be helpful if Martin Wolf finally realizes the dangers the risk weighted capital requirements for banks pose.

Sir, now, more than 12 years after Basel II was approved Martin Wolf writes: “If one ignores the vanishing trick of risk-weighting, the true leverage of many large banks remains at more than 20 to one.” “Banks are weak links in the economic chain” February 17.

But, of course, the real question though is, why have regulators ignored the dangers “the vanishing trick of risk-weighting” poses? Not only can that risk weighting that was envisioned to provide better and more comparable information on banks confound the markets more; it also provides banks with an versatile instrument to game the regulations; and, worst of all, it distorts the allocation of bank credit to the economy.

On that last, the distortion, Wolf might at long last begin to wake up as he writes: “Banks are highly leveraged plays on economies. If economies are sick, banks are likely to be sicker.” So now let us hope that from that he could deduct that the way bank credit is allocated to the real economy carries real significance to the health of the economies and the banks.

And then, Hallelujah, Martin Wolf finally accepts “that banks are exposed to almost everything”. That should allow him to understand the idiocy of re-weighing for basically the only risk that banks with interest rates and amounts of exposure already clear for, while leaving the whole universe of other risks a bank faces out of the regulatory equation.

Sir, as you well know by now I will with much interest follow where Wolf goes to now because it would of course be very useful if the leading economic commentator of the Financial Times opened his eyes to what has and is really happening with our banks.

Currently, by regulators allowing banks to earn higher risk adjusted returns on equity financing on what is perceived or deemed as safe than on what is perceived as risky, banks have stopped financing the riskier future and settled on refinancing the safer past… and that cannot be good for anyone, least so for our children and grandchildren.

And of course, all for nothing because major bank crisis never ever result from excessive exposures to something ex ante perceived as risky.

@PerKurowski ©

Dare ask bank regulators: Why do you think that what is perceived as risky is riskier than what is perceived as safe?

Sir, Philip Stephen writes: “The crash and the subsequent depression broke the confidence of a generation of political leaders. All the guff they had learnt about a new financial capitalism, self-equilibrating markets and the end of boom and bust was shown to be, well, guff… bankers by and large got off scot free. Not so politicians who believed their own propaganda and embraced the laissez faire Washington Consensus as the end of history. Capitalism survived the crash, but at the expense of a collapse of trust in ruling elites” “Politicians are paying the bill for the crash” December 18.

What “laissez faire Washington Consensus”? That which with the Basel Accord prescribed a risk weight of zero percent for sovereigns and 100% for the private sector? That which with the risk-weighted capital requirements for banks completely distorted the allocation of bank credit?

The problem is that the trust of politicians in the ruling regulating technocrats did not collapse. As I have said many times, neither Hollywood nor Bollywood would have been so dumb as to allow the producers of a box office flop like Basel II to proceed, with the same scriptwriters, to produce Basel III.

I have a feeling politicians, Fed’s policy makers and perhaps even some FT journalists start to suspect that something is making the Fed and the ECB stimulus fail; and would therefore want to ask regulators: Why do you think that what is perceived as risky is riskier for the banking system than what is perceived as safe?

Why don’t they ask? Perhaps the explanation is one that John Kenneth Galbraith gave in “Money: Whence it came where it went” 1975, namely that “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections.”

PS. Sir, now when the credit quality of EM markets is deteriorating, banks holding such debt are required to put up more capital against positions taken up during sunnier days, putting a squeeze on bank lending, and so everything will become darker yet. Vive la procyclicité!

@PerKurowski ©

Amazing! Simon Kuper calls a zero risk weight of government and a 100 % for the private, a “right’s cult of free markets”

Sir, Simon Kuper writes: “the right’s cult of free markets was the last surviving big idea. Then the financial crisis of 2008 killed it off almost everywhere outside the US Republican party.” “Small ideas are better than big ones” October 24.

That is simply not true. If we are going to talk about the biggest current idea, and that has been applied on a global scale, I would say that is the credit-risk weighted capital requirements for banks, an idea concocted by the Basel Committee. And its origin, the Basel Accord in 1988, set the risk weights for loans to governments at zero percent while the risk weight for loans to the private sector were set at 100 percent.

That BIG IDEA, discriminating with regulations against the citizen and in favor of the state, has survived the financial crisis, and is still up and running strong in Basel III 

If anything, the Basel bank regulations should be called, the product of a “left’s cult of controlled markets”.

PS. Of course small ideas are always better than big dumb ideas. 

@PerKurowski ©

If we are going to have a Basel IV that works for the economy, it cannot be built on principles of Basel I, II or III

Sir, Simon Samuels is half right when opining: “It is one thing to decide that tighter regulations are worth the cost. It is another to exacerbate that cost through delay and indecision” “Make up your mind on banking regulation” August 27.

Half right because much more than tighter regulations, we need better and less distorting regulations.

In his article Samuels, surely quite unwittingly, describes well how the risk-weighted capital requirements in Basel regulations distort the allocation of bank credit. When he writes: “a business that has a 17 per cent return on equity under Basel III might earn a paltry 3 or 4 per cent under Basel IV”, he should not ignore that a lot of lending that previously gave banks a decent return on equity, equally became bad business with the introduction of the risk-weighted capital requirements.

Before the introduction of credit risk weights, all borrowers competed with their risk-adjusted margins on equal terms for the access to bank credit. Now those who are perceived as safe, and which therefore generate lower capital requirements, are favored because their risk-adjusted margins can be leveraged many times more on bank equity than those of the “risky”. The problem of SMEs and entrepreneurs is that their voice is much less heard than that of the banks and of the AAArisktocracy.

I do understand that Samuel, as a bank consultant, shows much concern for the banks… but let me assure him that any delays and indecisions about correcting current bank regulations are hurting the real economy much more… and, implicitly, therefore also hurting the banks too.

Bankers, if good citizens, should know that making great returns on equity based on misallocations of credit to the real economy… hurts the future of which their kids are also a part.

@PerKurowski

One inequality is so bad for growth that it should enter the Guinness Book of Records.

Sir, Chris Giles discusses the point of view of OECD and IMF with respect to the relations between inequality and economic growth, “Inequality is unjust — it is not bad for growth”, August 19.

Giles correctly writes: “Vigorously promoting competition…simultaneously boosted efficiency and fairness” and “attacking vested interests and the economic rents that allow the fortunate few to gain at the expense of others is a fruitful avenue for policy.”

But Giles, sadly, finds again no reason to mention the access to bank credit, one of the most fundamental ingredients of any pro-growth and pro-equality agenda, and how bank regulations completely distorted it. Here follows a short recap:

The basic capital requirement banks had to hold against assets in Basel II of June 2004 was 8 percent.

The risk weight for an AAA to AA rated sovereign (which means money managed by government bureaucrats) was 0%, so that the effective capital requirement was 0%, so banks could leverage infinitely when lending to such governments.

The risk weight for an AAA to AA rated private sector borrower (the AAArisktocracy) was 20% so that the effective capital requirement was 1.6%, so banks could leverage more than 60 to 1 when lending to this AAArisktocracy

The risk weight for a borrower without a credit rating was 100%, so that the effective capital requirement was 1.6%, so banks could only leverage 12.5 times to 1 when lending to for instance SMEs and entrepreneurs.

That meant that banks could leverage their equity and the implicit support they receive from taxpayers immensely more lending to “The Safe” than when lending to “The Risky”.

That meant that banks could earn much higher risk-adjusted returns on their equity when lending to “The Safe” than when lending to “The Risky”.

That meant banks would lend more and at lower relative rates to “The Safe” and less at higher relative rates to “The Risky” thereby curtailing the opportunities of those who have not yet made it.

And that had banks dangerously overpopulating supposedly safe-havens like the AAA rated securities backed with mortgages to the subprime sector and Greece; which caused the very bad for growth financial crisis; while simultaneously, equally bad for growth, negating the fair access to bank credit, the opportunity, to those tough we need to get going, most especially when the going gets tough.

The number one reform that needs to take place, for growth and equality to have a fair chance, is to get rid of the credit-risk weighted capital requirements for banks; and this even if it requires to temporarily lower the basic capital requirement for banks.

However the problem with that is that it would require all experts of OECD, IMF and all other having anything to do with bank regulations to explain, the why of this distortion in the allocation of credit to the real economy… and the why of their utterly long silence on it…

And of course, on the silencing part, FT and the likes of Chris Giles, are also among those having some explaining to do.

PS. Basel III, by tightening general capital requirements for banks has, on the margin, even increased some of the distortion the credit-risk weighting cause. 

@PerKurowski

The financial world has not even begun to extricate its banks from the rules that caused the crisis and keeps it alive

Sir, Patrick Jenkins writes: “A new era of finance feels within reach. Aided by rules that promote integrity without stifling innovation, financial institutions may finally be in a position to revive not just their own reputations but the global economy, too”, “The financial world can look beyond the crisis”, June 13.

“Aided by rules that promote integrity without stifling innovation”? Let me assure you that the pillar of current bank regulations, credit-risk-weighted capital requirements for banks do not promote integrity, and do stifle innovations.

To discriminate against the access to bank credit of those who already, by being perceived as risky, are naturally discriminated against, and favoring that of those perceived as safe, and who are already naturally favored, has nothing to do with integrity… quite the contrary.

And to thereby deny fair access to bank credit to all those perceived as risky, like SMEs and entrepreneurs, is without a doubt to stifle innovations.

This crisis is a long way from being resolved. For that the world needs to eradicate these bank regulations… those that are yet not even acknowledged.

@PerKurowski

Capital, as in bank credit, is not “deregulated to a sensible degree”. It is clearly insensibly misregulated.

Sir, I refer to your “UK’s weak productivity invites a bolder response” April 22.

If a corporate borrower, who for instance has a credit rating of A, becomes downgraded one notch to BBB+, the expected losses naturally go up. But the bank equity requirements, which are to cover for unexpected losses, these also go up; in Basel II from 4 to 8 percent, and that is not natural.

The reason for this double whammy, that in a downturn hits the bank’s capacity to give credit, has to do with the fact that Basel regulations derives the estimation of unexpected losses, from the probabilities of default, in other words from the expected losses.

And of course, as I have told you, not joking more than a 1.000 times, the existence of different bank equity requirements based on different credit risk perceptions, also makes it impossible for banks to allocate credit efficiently to the real economy.

And so much of the fall in productive potential that you attribute to “the economy suffered a shock of demand”, is instead the result of these crazy bank regulations that direct the flows of bank credit to what’s “safe” and away from what’s “risky”. And in consequence your opinion that “capital” is “deregulated to a sensible degree” is just laughable. These are clearly very insensibly misregulated.

@PerKurowski

Has Europe fallen into the hands of a Chauncey Gardiner like figure?

Sir, I refer to Joel Lewin’s “European QE redraws junk bond frontier” April 14.

Were the implications not so tragic one could have joked about Europe having fallen into the hands of a Chauncey Gardiner like figure; the gardener elevated to Economic-Guru in Jerzy Kosinski’s “Being There”.

ECB’s/Mario Draghi’s seems not to understand the dangers of flooding the markets with QE liquidity, while the channels for that to flow by means of bank credit to where it is most needed, like to SMEs, are clogged. Firmly clogged by senseless credit-risk-weighted equity requirements for banks.

The overflow of liquidity, into more risky bonds, creates clearly serious risks for individual investors. But, for the economy at large, much worse is the dangerous overpopulation of the “safe-havens”; and the even more dangerous refusal to explore the risky bays, where there is a chance to find what could feed the future.

At least a normal gardener would now you need to water the plants, but not too much.

@PerKurowski

Technocrats, pouring QEs over clogged financial transmission mechanisms, set us up for the mother of all hangovers.

Sir, Henny Sender puts her finger on what should be of utmost concern for most delegates to discuss during IMF and World Bank meetings next week, namely that “Weak growth suggests QE might not have been worth the costs” April 11.

And Sender is so right remarking on how “odd… is the absence of a vigorous debate about the costs of these experiments, whether in the US, in Japan or now in Europe.”

With their QEs, unelected technocrats are pushing our economies higher and higher up a mountain of risks, for absolutely no purpose. As I’ve written to you Sir, at least a hundred times, if the liquidity provided by these schemes, are not allocated efficiently to the real economy, then absolutely nothing good can come out of it.

But the same unelected technocrats, simultaneously, by means of credit-risk-weighted equity requirements, have clogged the financial transmission mechanism, hindering bank credit to reach where it is most needed, the SMEs and the entrepreneurs. In other words, we are being set up for the mother of all hangovers. Damn those technocrat clowns!

According to the report by Swiss Re that Sender quotes, “US savers alone have lost $470bn in interest rate income, net of lower debt costs”. That is only one of the first symptoms.

@PerKurowski

Allow the SMEs and entrepreneurs to help build up the economy, and bridges to somewhere will follow.

Sir, Alan Beattie writes “The IMF, transformed from an agent of neoliberalism to a Gosplan-style advocate of public works, also supports a government investment push”, “The less appealing way to abolish boom and bust” April 11.

IMF, in Chapter IV of its recent World Economic Outlook of 2015, titled “Private investment: What’s the hold up” acknowledges: “Firms with financial constraints face difficulty expanding business investment because they lack funding resources to do so, regardless of their business perspectives” (page 11); “financially dependent sectors invest significantly less than-less dependent sectors during banking crisis” (page 15).

Yet the primary “Policy Implications” reached by the study is: “a strong case for increased public infrastructure investments…[and] for structural reforms…for example reforms to strengthen labor force participation and potential employment, given aging populations. By increasing the outlook for potential output, such measures could encourage private investments” (page 18). 

And only then, almost as an afterthought, is it that the IMF puts forward: “Finally, the evidence… suggests a role for policies aimed at relieving crisis-related financial constraints”.

What “suggests a role”?

How on earth can IMF consider public infrastructure investments more important for the economy than relieving financial constrains?

One explanation could be that the study includes only data that “cover public listed firms only” and not data about “unlisted small and medium sized enterprises” (page 13). Clearly, if you do not study those most in need of access to bank credit, then you will of course not be able to measure the real importance of relieving financial constrains.

The second explanation is that IMF’s professionals insist in covering up for the mistakes of colleagues, the bank regulators. That is because relieving the real financial constrains, requires exposing how the current credit-risk-weighted equity requirements for banks odiously discriminates against the fair access to bank credit of those who most need it, like the SMEs and entrepreneurs.

Sir, the most important thing to do is to get rid of the regulatory distortions so as to enable banks once again to allocate their credit more efficiently to the real economy. If that is done, then you might find places whereto bridges should be construed. Otherwise the risk of building too many bridges to nowhere, is just too big for any economy to manage.

@PerKurowski

Any regulator that would call what is currently happening an unexpected consequence is clearly not fit to regulate.

Sir, I refer to Stephen Foley’s “BlackRock chief warns ripple effect of strong dollar threatens US growth” April 7.

It states that Larry Fink, CEO of BlackRock “highlights the risk that monetary easing has inflated asset bubbles as investors such as pension funds searching for yield in a low interest environment are pushed into riskier classes”. And it quotes Mr Fink with: “This mix of growing assets and shrinking yields is creating a dangerous imbalance”. I am left wondering whether Mr. Fink really knows what is going on.

Does he know that one reason for why pension funds “are pushed into riskier classes”, is that they are pushed out from the perceived safe havens by bankers pushed into safer classes by their regulators with their silly and dangerous credit risk weighted equity requirements for banks? And that is just going to get worse the tighter bank equity gets to be, and when insurance companies also regulated with Solvency II in a similar way?

Indeed, “monetary policy seem insufficiently attuned to the conundrums their actions are creating for investors” But regulators are equally attuned to the conundrums their actions are creating for the fair access to bank credit of “the risky”, like for all the SMEs and entrepreneurs we need to get going when the going is tough.

And regulators please do not call all this an unexpected consequence. If you do it just evidences even more that you are definitely not fit to regulate.

@PerKurowski

Making clear the role of dangerously lousy bank regulations, would help to bridge many differences in Greece.

Sir, Martin Wolf writes: “The creditor side considers its generosity to profligate Greeks exemplary. The Greeks believe that private lenders were guilty of irresponsible lending, that the “rescue” was not of Greece but of those selfsame careless lenders and, above all, that Greeks have suffered enough. Both positions have merit. But no good will come from hurling such charges at one another”, “A mishap should not seal Greece’s fate”, April 1.

Absolutely! But what could have been happening if for instance a Martin Wolf had used his platform at FT to ask: “But what were European bank regulators doing allowing banks to lend to Greece's  government against basically no capital at all, so that banks had all incentives on earth to lend to Greece excessively?”

Would that have made a difference? I believe so.

As is, in the hurling of accusations between Greece and creditors, no one says a word about the role bank regulators played. They are the ones most to blame… but seemingly they got themselves a lot of protectors.

That is truly sad. The reality is that what Greece most needs now, is to liberate itself from regulations which, by favoring the access to bank credit of those who can only dig it deeper into the hole where it find itself, government bureaucrats, discriminates against the fair access to bank credit of those who can most help it to recover, its SMEs and entrepreneurs.

@PerKurowski

Europe is a continent enfeebled by an economic crisis resulting from enfeebling bank regulations.

Sir, Tony Barber writes: “A continent enfeebled by economic crisis” March 31. I have a question to him (and you).

What does Barber think would happen with his retirement account if, since he began to save, he would have paid his investment manager much higher commissions on returns produced by safe investments than on returns produced by riskier investments. Would his investment manager not have played it overly safe for him?

But, on a societal level, by means of those credit-risk weighted equity requirements which allow banks to earn much higher risk adjusted returns on their equity when lending to something “safe”, than when lending to something “risky”, that is precisely how current regulators have instructed our banks to act.

Whether we like it or not, banks have a very important role to play as investment managers for our economies. And the reason we taxpayers implicitly agree to support banks is not for them to avoid risks but to, with reasoned audacity, take intelligent risks on our behalf.

We need our banks to act much more like aggressive hedge fund in which the manager, the bank, takes a great commission, but also produces great results for us the investors, and for our economies.

Barber quotes Frederick the Great with “Diplomacy without arms is like music without instruments”. Indeed, but banking without risk-taking can only, in the best of cases, result in paying out some lousy annuities to those with very short life expectancy.

Europe (and other) has been enfeebled by risk-adverse bank regulations and, amazingly, this seems to be a non-issue for most of you at the Financial Times.

@PerKurowski

Accepting credit-risk weighted equity requirements for banks, is accepting the economy going into early retirement.

Sir I refer to Yoichi Takita’s “Split emerge between central bank and policy makers”, your special report on Japan, March 30.

Takita writes “ The government is working hard to ensure investment and employment growth will lead to an economic upswing.”… and for that Mr. Abe will try “eliminating disincentives such as high corporate tax rates, big electricity bills and excessive economic rules”.

I do not know enough about Japan to evaluate how much that could help, but, if it was for instance Europe, which depends so much on bank credit, then that would not suffice. That is because any country that tells its banks to go and leverage much their equity, and the implicit support they receive from taxpayers, on what is “absolutely safe”, and to stay away from “the risky”, is a country that has placed itself, unwittingly or voluntarily, in an early retirement mode not compatible with any sturdy and sustainable economic growth.

@PerKurowski