If Brexit goes hand in hand with a Baselexit, Britain will at least do better than now.

Sir, Martin Wolf titles, [and I add], “Irresponsible promises will hit brutal economic reality" November 15.

Just like the irresponsible and populist promise of “We will make bank systems safer with our risk weighted bank capital requirements" and that is based on that what bankers perceive as risky is more dangerous than what they perceive as safe, brutally hits our real economies.

Wolf quotes the Institute for Fiscal Studies with, “over the last 11 years [before any Brexit], productivity — as measured by output per hour worked — has grown by just 2.9 per cent. That is about as much as it grew on average every 15 months in the preceding 40 years.”

And I ask, could that have something to do with that Basel II that introduced capital requirements that allowed banks to leverage their equity much more with the “safer” present than with the “riskier” future, for instance 62.5 times with what has an AAA to AA rating while only 12.5 times with a loan to an unrated entrepreneur? Of course it has. With it regulators gave banks the incentives to dangerously overpopulate safe havens, and to abandon their most vital social purpose, which is to allocate credit efficiently to the real economy.

So compared to the damage done by the Basel Committee for Banking Supervision any foreseen negative consequences of Brexit seem minuscule.

And with respect to obtaining financial resources for financing the investments in infrastructure that Wolf so much desires, and which would cause larger fiscal deficits he argues “a necessary condition would be the confidence of the world’s savers and investors in the good sense, self-discipline and realism of British policymakers.”

Indeed, what if British policymakers stated. “We abandon the Basel Committee’s regulations. Not only are these with their 0% risk weight to the sovereign and 100% the citizens outright communistic, but these also introduced a risk aversion that truly shames all those British bankers who in past times daringly took risks and with it bettered Britain’s future”. 

Sir, I hold that would be a much-needed example for the whole world of good sense, self-discipline and realism. “A ship in harbor is safe, but that is not what ships are for.” John A. Shedd.

Sir, Wolf seemingly thinks that remaining in a EU in which its authorities assigned a 0% risk weight to all Eurozone’s sovereign debts, even though none of these can print Euros is better for Britain. As I see it, that is a reason for running away from it even more speedily.

PS. Should not bank supervisors be mostly concerned with bankers not perceiving the risks correctly? Of course! So, with the risk weighted capital requirements, what are they doing betting our bank system on that the bankers will perceive credit risks correctly?

@PerKurowski

If with Brexit Britain can break lose from Basel’s bank regulations, then it could come up on top of EU

Sir, Martin Wolf writes: “The recently leaked UK government analysis concludes that with Brexit, under a Canada-style deal, UK gross domestic product might be 5 percentage points lower than it would otherwise be, after 15 years — a loss of about a fifth of the potential increase in output by that time”, “Britain’s road to becoming the EU’s Canada”, February 21.

Has someone in the UK government analyzed what long term impact on UK’s gross domestic product the risk weighted capital requirements for banks have? I mean because since this regulation gives banks great incentives for staying away from financing the riskier future and just keep to re-financing the safer present, that most be causing some serious costs for the future.

Again, any bank regulations that is so stupidly based on the assumption that the ex ante perceived risks reflects adequately the ex post danger to the bank system, has to turn out incredibly costly.

So, if Brexit allows Britain the opportunity to break lose from these regulations, and Britain capitalizes it, while EU stay hooked on it, then Britain could come up over EU, and many in Europe would want to Baselexit too.

Why, when the world is going through so many not entirely understood changes, should Britain limit itself to cry over what it can lose with Brexit, while giving so little consideration to what it has to win, with our without EU?

PS. My 2019 letter to the Financial Stability Board
PS. My 2019 letter to the IMF

@PerKurowski

If there is a Brexit, will EU throw out English and adopt German or French or Spanish as its main language?

Sir, I refer to Martin Wolf’s “Britain’s friends are right to fear Brexit” April 20.

I reread it several times, and of course, if it is Brexit, and nothing more, then UK has the right to be very concerned about the consequences. But, it doesn’t have to be that way.

For instance Britain could try to explore the possibilities of strengthening the bond that the English language represents. For instance when Wolf remind us of how “US resources and will sustained the west during the second world war and the cold war”, I have to ask myself if that was more because of Europe, or because of England, and frankly I do not really know the answer.

Also Europe itself suffers severe existential problems. As you Sir and Martin Wolf know, I believe that the risk aversion implicit in the risk weighted capital requirements for banks basically amounts to a decision to lie down and die. And so if Brexit would come hand in hand with a Baselexit, then surely UK would come out as a winner.

Wolf is right that the UK would always have the option of existing the EU, but our kids and our children cannot afford to wait for better possibilities to find jobs that those lousy bank regulations permit.

As with the wall Trump wants to build, you are never ever really sure on which side of it you rally want to find your family.

PS. Linguistic determinism is the idea that language and its structures limit and determine human knowledge or thought, as well as thought processes such as categorization, memory, and perception.

PS. By the way could EU keep as its main language a language of a non-member? J

PS. During my two-short-long years as an Executive Director of the World Bank, I don’t recall a more enjoyable moment than listening to a colleague, the Executive Director for France, Pierre Duquesne's wonderful spirited defense of the budget allocation for translating English documents into French. Languages are indeed of utmost importance to some.

@PerKurowski ©