February 22, 2013
Sir, Alex Barker and Caroline Binham report on how “Brussels turns up pressure over Libor-rigging scandal”, February 22, They write “a bank implicated in all three investigations could, for example, face fines of up to 30 percent of revenues”.
Has the European Commission no idea of whom, at the end of the day, somehow somewhere, is going to have to pay these fines?
Just for a starter, depending on whether the borrowers are perceived as risky or not, as paying the fine will result in less bank capital, the guilty bank will have to shrink its lending between 10 and 50 times the amount of the fine. And of course the issuing of fresh bank capital that is so needed will be more expensive as a result of these fine-risks. And of course the margins charged by the guilty bank on its lending business will have to increase.
And those who will suffer the most are the bank borrowers who, because they are perceived as “risky”, by order of the bank regulators, currently generate higher capital requirements for the banks, like small and medium businesses and entrepreneurs.
Fines and other sentences should be applied directly to the bankers involved, but, if they insist on the fines being paid by the banks, the least they should do is to require these to be paid for example through the issuance and delivery of new bank shares for the amount of the fine at market prices.
Please we must stop this foolish and immoral flogging of “The Risky” bank borrowers, as if it were not already hard enough on them to be perceived as “risky” having to pay higher risk-premiums, getting smaller loans and often having to accept harsh terms. When the going gets tough, that is when we most need “The Risky” to get going.
And please, bank regulator, wake up to the reality that “The Risky” has never ever been the root of your problems, that dubious honor belongs exclusively to the “Potemkin Infallible”
January 16, 2013
Sir, Kate Burgess and Caroline Binham reports on how the bankers’ “own trade body, British Banking Association, this week called for an independent board to monitor and uphold professional standards in the industry.”, “BBA sets out plans for monitoring of standards” January 16.
Nothing wrong with that but if there are some who really need to review their standards, that is the bank regulators. Any independent review of what they are doing would surely come up with many recommendations and among which I would foremost identify the following:
1. Before regulating the banks the regulators should define the purpose of the banks.
2. Before setting up capital requirements for banks based on perceived risks, the regulators should look at all the empirical evidence out there so as to understand that what is really risky for banks is not what is perceived risky but what is perceived as absolutely safe.
3. When regulating, do no harm, like distorting the banks utmost important function of efficiently allocating economic resources.
Those simple principles, if they had been applied by the regulators, would have saved the banks and us from the current crisis.
Since these were not followed, we ended up with banks having obese exposures against what was perceived as absolutely safe but that ended up to be very risky; and anorexic exposures to those risky small businesses and entrepreneurs who on the margins are the most important actors in the real economy.
December 20, 2012
Sir, I cannot but express amazement with the abundant and detailed coverage given to of UBS and The Libor Affair by the Financial Times, for instance on December 20, when compared to the so little information given out on what the Basel II bank regulations really was about, The Basel Affair.
For instance, just the simple publication of the tables of risk weights corresponding to “Claims on sovereigns, page 19 and “Claims on corporates”, page 23 and that appears in the June 2006 document that compiles Basel II, with an explanation of what that entailed in authorized leverages to banks when holding different assets, would have enlightened your readers of a problem a thousand-fold more significant than the absolutely illegal Libor incident.
In fact Jonathan Guthrie’s assertion that “Big banks must reinvigorate their moral mojos” should apply as much or even more to the regulators. Here we have public servants deciding, for no other reason than to satisfy their boudoir dreams of a world with no bank failures, that those perceived as risky must pay even higher interest rates to the banks than they would ordinarily have to pay, and those perceived as absolutely safe less, and that, besides being plain stupid, is also plain immoral.
And when Caroline Binham reports on how “Lowball [Libor] tenders aimed to paint a rosy pictures of health [of UBS]” this seems so innocent when compared to the so low capital ratios reported by the banks, because of the risk-weighting of assets, and which really confounded all, including all FT’s experts.
July 20, 2012
Sir, Patrick Jenkins and Caroline Binham report “FSA steps up probe into bank rate rigging”, July 20. I just wonder when someone will initiate a probe into FSA´s very own rate rigging.
The FSA must have known that by using capital requirements for banks based on perceived risk, they were effectively rigging the interest rates charged by banks in favor of those perceived as not risky and against those perceived as risky. And the net effect of this rigging is of course immensely larger and damaging than any Libor rigging.
And if the FSA did not know that, then the really urgent probe should be about the selection process of bank regulators.