Global and local inequality is much driven by dumb bank regulations. World Bank and IMF should do something about i

Sir, Branco Milanovic, with respect to “global inequality” writes: “While for national statistics and inequality measures, there is at least a national government that citizens can blame for high inequality, there is no comparable body globally.” “Putting a number on global inequality is long overdue" September 19

Oh no! For quite a lot of that inequality, I totally blame the Basel Committee on Banking Supervision. With its risk-weighted capital requirements for banks, which favor the access to bank credit of the “Safe”, the developed, the rich, the past, it is basically decreeing inequality.

The interesting aspect with that global inequality driver is that it also causes inequality on a local national level. Just try to figure out how many millions of SMEs and entrepreneurs, all around the world, have been denied access to bank credit because of this regulation.

And yes both the World Bank and the International Monetary Fund have a role to play correcting this.

The World Bank, as the world’s premier development bank, knowing that risk taking is the oxygen of any development, should send bank regulators clear signals to the effect that nothing is as dangerous as excessive risk aversion.

And the IMF, in charge of worldwide financial stability, should also tell regulators to stop being silly, since no major bank crisis has ever resulted from excessive exposures to something ex ante perceived risky. 

PS. And FT should stop covering up for dangerous and failed bank regulators.

@PerKurowski ©

There are productive and there are destructive inequalities, and we must know which are which.

Sir I refer to John Gapper’s “In search of balance: Capitalism”, December 24.

I have no problems with most of the “productive” inequalities which result from courageously moving forward – when financing the “risky” future, when increasing the cake. But I do have problems with many of the “destructive” inequalities, which occur when just trampling in the water, when extracting the last ounce of juice from any past risk taking – when refinancing the “safer” past, when only wanting to distribute the cake.

In this respect, when Pope Francis says “I exhort you to a generous solidarity and a return of economics and finance to an ethical approach that favors human beings”, I most emphatically have to state that the current capital requirements for banks based on perceived risks, risks already cleared for elsewhere, is definitely not an ethical approach to economic and finance.

And since Gapper makes a reference to Branko Milanovic of the World Bank, the author of “The Haves and the Have-Nots”, I must also comment that it is truly surprising to see how few realize how these regulations, which favor the Haves and discriminate against the Have-Nots, constitute one of the foremost drivers of “destructive” inequalities.

And that the World Bank, the world’s premier development bank, and who should be the first to know that risk-taking is the oxygen of development, keeps quiet on this whole issue, just makes me very sad for the future generations.

FT, please try to reflect on where we in the Western World would have been, had those risk-weighted capital requirements introduced over the last three decades by the Basel Accord, always applied.