Stress tests for banks, performed by mighty regulators, signify dangerous systemic risks, as well as useless predictors

Sir, Caroline Binham reports on how “Andrea Enria, the outgoing head of the European Banking Authority, who is set to become the Eurozone’s top banking regulator, has questioned the value of its stress tests of lenders’ balance sheets, arguing that elements of them are no longer ‘tenable’ and need a redesign” “European regulator questions value of stress tests” November 16.

I could not agree more for two reasons:

First: Stress tests introduce a systemic risk. The fact that banker know their banks will be the object of stress tests causes them to distract their attention from what they might think to be more dangerous, in order to concentrate more on what they think regulators might think more dangerous.

Second: The stress tests are useless since they avoid stress testing many real stresses. In 2003 the United States General Accounting Office (GAO), in its study of the IMF’s capacity to predict crisis concluded, among other things, that of 134 recessions occurring between 1991 and 2001, IMF was able to forecast correctly only 11 percent of them. Moreover, when using their Early Warning Systems Models (EWS), in 80 percent of the cases where a crisis over the next 24 months was predicted by IMF no crisis occurred. Furthermore, in about 9 percent of the cases where no crisis was predicted, there was a crisis.

Much of that has to be a consequence of that if IMF forecasts a crisis; it could quite possibly be blamed for detonating that crisis. Similarly, regulators will avoid to stress test the risks they might be blamed for having produced. For instance when will they stress test the banks on the possibility that their risk weight of 0% to sovereign would have to be increased, and the market reactions to that news. Never! They have painted themselves into a corner.

Sir, when it comes to banks, and their regulations, worry much more about what might be perceived as safe than about what is perceived as risky. In that respect, if I were to perform stress tests on banks, I would look to stress test the risks that seemingly would least need to be stress tested.

@PerKurowski

The regulators should also care about their own internal governance standards.

Sir, Gary Dixon referring to Caroline Binham’s report “Record caseload for UK financial regulator” (August 13) writes, “FCA is now paying increased attention to the internal governance standards of regulated firms... all regulated firms should be taking steps now to improve their board standards as a matter of priority.” ,“Governance standards have become FCA’s focus” August 14

The regulators should also urgently take steps to improve their own government standards. I mean how could they have signed up to those risk weighted capital requirements for banks based on the nonsense that what’s perceived risky is more dangerous to bank systems than what’s perceived as safe? 

And those in EU, how could they have assigned a 0% risk weight to Greece and thereby doom it to suffer the tragedy of way excessive public debt?

@PerKurowski

France, why are you willing to give other countries the advantage of having better-capitalized banks?

Sir, Caroline Binham and Jim Brunsden write: France’s finance minister, Bruno Le Maire, said yesterday that France would oppose any increase in capital requirements for banks” France digs in heels over bank capital increase. “France digs in heels over bank capital increase” October 11.

I don’t get it. If I were a finance minister the last thing I would want to see are the banks of my country being less capitalized than that of others. I wonder what stories French banks must have fed him.

I am not referring to excessively capitalized banks. I just know that banks that might be leveraged 10 to 1, a capital requirement of 10% against all assets, will be more stable and more functional than a bank leveraged 20 to 1, the result of some generous risk weighted capital requirements. And I am sure that the first banks will be able to attract better shareholders willing to obtain lower but safer returns on equity, than those speculators interested in the latter option.

And the better-capitalized banks are, the more capable they are to assume that necessary risk-taking that allocates credit more efficiently to the real economy.

“A ship in harbor is safe, but that is not what ships are for”, John A Shedd.

Banks described as safe in terms of risk-weighted capital requirements compliance are basically cross-your-finger-those-risk-weights-are-right safe banks. And I swear 0% for sovereigns, and 20% for what is so dangerously AAA rated, are absolutely wrong risk weights.

@PerKurowski

Financial Conduct Authority dare go after the Great Financial Distorters, your hubristic bank regulating colleagues

Sir, Madison Marriage, Peter Smith and Caroline Binham, reporting on the Financial Conduct Authority’s FCA work on investment managers write that: “tougher measures come as regulators and policymakers are turning their attention from banks to other parts of the financial system that could pose future risks.” “UK financial regulator lifts bar to create one of the toughest investment regimes” June 29.

Yes, but the part of the financial system that poses the most important current and future risks, are the regulators who with their risk-weighted capital requirements for banks, horribly distort the vital allocation of bank credit to the real economy.

Come on FCA, don’t waste time on the small guys, dare go after the big ones, even if they are your colleagues.

PS. FCA, suppose ALL Investment Managers behaved exactly they are supposed to do: Would that create less inequality? Would that represent more or less of a systemic risk?

PS. FCA, how can you help us have the wealthy 1% fall into the hands of really lousy investment managers, so as to fight inequality? :-)

@PerKurowski

Draghi, the more confidence we have in risk weighted capital requirements for banks, the dumber and more fooled we are

Sir, Caroline Binham and Emma Dunkley quote Michael Lever, head of prudential regulation at AFME, which represents the biggest banks and other markets participants, with: “It is important to take the time to create a framework that is capable of accurately measuring the risks that banks are assuming” “Banks win Basel reforms reprieve” January 4.

Hold it there! The problem is not only in measuring risks. The problem is also in assigning the relative importance to the risks measured.

The current capital requirements for banks are based on ex ante perceived risks that should be cleared for by bankers, by means of interest rates and size of exposures. The result is that ex ante perceived risks are excessively considered. Therefore that causes a wrong allocation of bank credit; and this even if the perceived risks are perfectly accurately measured.

This regulation now causes that what is perceived as “safe”, like AAA rated or Sovereigns, get too much credit at too low rates, which is dangerous for the banks; and that what is perceived as “risky”, like SMEs and entrepreneurs, receive too little or too expensive credit, which is very dangerous for the real economy

Mario Draghi, president of the European Central Bank, who chairs the Basel committee supervisory board, is here quoted with: “Completing Basel III is an important step towards restoring confidence in banks’ risk-weighted capital ratios, and we remain committed to that goal.”

To that my only one answer, for the umpteenth time, is “No!” The more confidence in something that is so rotten to its core the worse.

PS. FT, why do you not do all of us a favor and dare ask bank regulators some very basic questions

@PerKurowski

Using Basel Committee’s standardized risk weights could also be worse than using banks' internal risk models.

Sir I refer to Caroline Binham’s, Laura Noonan’s and Jim Brunsden’s “Basel fails to agree key risk measures” December 1.

Currently: The lower the risk - the lower the capital requirement - the higher the leverage - and so the higher the risk adjusted return on equity. Therefore it is clear that, as long as bank shareholders and bank creditors do not own 100% of the skin in the game, you cannot leave it in the hands of banks to use their own internal risk models. The conflict of interest with these is too much to handle for even the most disciplined banker. You would not like your kids to decide the nutritional values of their diets…would you?

But Sir, Basel II’s standardized risk weights makes it clear you can much less place the responsibility in hands of regulators who have no idea about what they are doing. Just an example: for an asset rated AAA to AA they assigned a 20% risk weight, while for what’s rated below BB-, something which would therefore never constitute a major danger for banks, that received a 150% risk weight.

And regulators assigning 0% risk weight to sovereigns, and 100% to We the People, more than regulators, seem to be simple statism activists.

@PerKurowski

The UK’s Financial Conduct Authority has got to be kidding, or it is just too dumb. Your choice Sir?

Sir, Caroline Binham writes: “Britain’s financial watchdog is clamping down on investment banks’ “misrepresentation” and league table inflation as part of efforts to stamp out conflicts of interest to ensure clients, particularly small companies, get a fair deal.” “UK regulator clamps down on banks’ moves to manipulate league tables” October 19.

It sounds important and seems correct, but also like a very bad joke. Here is “Britain’s financial watchdog”, one that gladly allows risk weighted capital requirements to be imposed on banks; that which curtails the access to bank credit of small companies, now coming out as a champion for the SMEs. It has got to be kidding, or it has to be dumb. Your choice Sir?

@PerKurowski ©

I would not shed tears for the Basel Committee for Banking Supervision’s demise. Neither would millions of SMEs.

Sir, Caroline Binham and Jim Brunsden, with help of Laura Noonan, report that the Basel Committee for Banking Supervision is introducing reforms that include a contentious “output floor” that would limit banks’ ability to use their own internal models to assess risk. “In many cases this will effectively raise the amount of capital that banks have to hold” “Basel group warns of call for lenders to ramp up capital” October 8.

What do they mean with “in many cases”? How can anyone believe all banks authorized to use internal models do not use these to minimize the capital they need to hold …so that they can maximize their returns on equity?

Sadly, what is really contentious with all this, is how on earth we ended up with such infantile regulators.

Anyhow the authors report these reforms are creating some discord between the US and Europe; to such an extent it “tests the viability and purpose of the Basel group, founded 41 years ago to harmonise banking rules around the world.”

Sir, if that would signify the end of the Basel Committee, you know I will not shed a tear. Neither would the millions of SMEs and entrepreneurs who over the years have been denied fair access to bank credit, if they finally came to realize that was a direct consequence of Basel’s regulatory discrimination. 

Knowledgeable bank regulators know below BB- rated assets are risky. Wise ones know what’s AAA rated is dangerous. The world is overdosing on information and knowledge and it sorely needs more wisdom.

PS: Here is an aide memoire on the regulatory monstrosity of the risk weighted capital requirements for banks.

@PerKurowski ©

The real UK economy, SMEs and entrepreneurs, need also to be invited to a “fireside chat” with Mark Carney and BoE

Sir, Martin Arnold and Caroline Binham report on the invitation of Bank of England extended to “The heads of the five big UK banks — HSBC, Barclays, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered — along with a few others including Nationwide and TSB”, in order to have a “Fireside chat” May 29.

The real UK economy should also be invited, so that it is given a chance to ask: “Mark Carney, BoE, when compared to that of SMEs and entrepreneurs, when will bureaucrats stop having preferential access to bank credit?”

Let me explain: The current risk weight of the “safe” sovereign is zero percent, and that of “risky” not-rated citizens 100 percent.

That means banks need to hold much less or no capital at all, when lending to the sovereign, than when lending citizens; which means banks can leverage their equity and the support they receive from society (taxpayers) much more when lending to the sovereign than when lending to citizens; which means banks can earn higher risk adjusted returns on equity when lending to sovereigns than when lending to citizens; and which means banks favor more and more lending to the sovereign over lending to the citizen. And so the SMEs and the entrepreneurs who basically represent the “not-rated citizens” must face harsher relative conditions accessing bank credit, than those that would prevail in the case all bank assets faced the same capital requirements. 

There could be some discussion on whether lending to sovereigns represent less risk than lending to SMEs and entrepreneurs. I do not believe so. Banks do not create dangerous not diversified excessive exposures to SMEs and entrepreneurs; and, at the end of the day, the sovereign derives all its strength from its citizens.

But I doubt the real economy will be invited to the fireside chat… the regulators do not want to hear: “Sir, especially after Basel II introduced risk-weights that also favor the safer of the private sector, the AAArisktocracy; do you know how many million of loans to SMEs and entrepreneurs around the world have not been awarded, only because of your risk weighted capital requirements for banks? Have you any idea of how many jobs for our young ones have not been created as a direct consequence of this?

@PerKurowski ©

It behooves us to stress-test our main bank regulators; the Basel Committee and the Financial Stability Board

Sir, Caroline Binham, Stephen Foley and Madison Marriage report “Systemwide and individual stress-testing of asset managers, as well as examining whether greater disclosure should be made by mutual funds, were among 14 recommendations made by the Basel-based Financial Stability Board to authorities across the G20 nations yesterday” “Stress test asset managers, says FSB” June 23.

Much more important for us is to stress-test bank regulators, to be sure they really know what they’re doing.

Since about two decades I have been asking regulators many questions that have not been answered. And so for a start I would like to ask Mark Carney, the current chair of the FSB; Mario Draghi, the former chair of FSB and the current chair of the Group of Governors and Heads of Supervision of the Basel Committee for Banking Supervision; and Stefan Ingves the current chair of the Basel Committee, the following:

For the purpose of setting the capital requirements for banks, in Basel II you assigned a risk weight of 150 percent to what is rated highly speculative and worse, below BB- but only 20 percent to what is rated AAA to AA.

Gentlemen why did you do that? Major bank crises have never ever resulted from excessive exposures to what is perceived as really risky, but always from what ex ante was perceived as safe but that ex post turned out not to be.

If these regulators are not capable of giving us a credible answer, then I submit they are not capable enough to stress test any bank, asset manager or mutual fund.

And, if they dare answer the first question, then make them explain all this!

@PerKurowski ©

FCA, if bank regulators distort the allocation of credit to the real economy, is it good conduct or criminally stupid?

Sir, I refer to Caroline Binham’s interesting story on how FSA, later FCA, investigated at a cost of £14m, a case of insider trading that led to the conviction of five men, “Spectrum: Watching the ‘insiders’” May 21.

In it Binham quotes Mark Steward, the Australian who leads the enforcement team at the FCA with: “We need to look at the potential for our markets to be undermined by systemic and organized crime – people who organize themselves to commit this kind of crime. And we are doing exactly that.”

But what if technocrats that can only be accused of criminal stupidity, unwittingly undermine our markets?

If there is ever a FCA investigation that is really needed, urgently, that is the one about the validity of the risk weighted capital requirements for banks.

By allowing banks to leverage more with assets perceived as safe than with assets perceived as risky, banks were allowed to earn higher expected risk adjusted returns on equity on safe assets than on risky assets; and that obviously dangerously distorted the allocation of credit to the real economy.

And for no reason at all! Never are major bank crises caused by excessive exposures to something ex ante considered as risky. The regulators assigned a risk weight of 20% for the prime AAA rated, and one of 150% for what is highly speculative and worse below BB- rated. Is one as a regulator really allowed to know so little about banks and be so stupid? Not to me!

PS. Here is an aide mémoire that could be helpful for FCA in its investigations

@PerKurowski ©

When you stress test lenders, why aren’t there any stress tests scenarios for borrowers?

Sir, Caroline Binham writes that “EBA outlines stress test scenarios for lenders” February 25.

And my immediate reaction is to remind you of that those stress tests do not include, in any way shape or form, an analysis about how banks could be stressing the real economy, with an inefficient allocation of bank credit.

Again, for umpteenth time, I have always argued that the number one social function of banks is not necessarily that of repaying whatever it owes, but allocating their credit as efficiently as possible to the real economy.

But the credit risk weighted capital requirements have made it impossible for banks to fulfill that social duty.

Dare ask: How many millions of small bank loans to SMEs and entrepreneurs, has the Basel Committee’s regulations impeded worldwide?

And so any sensible stress test of banks should not only consider what is on banks’ balance sheets but also what is absent.

And those comprehensive tests would evidence that banks are no longer finance the risky future, but only refinance the safer past.

Though I admit that conclusion might be to stressful for the great distorters, the bank regulators, to bear. 

@PerKurowski ©

For the good of the real economy, let’s pray the day of the so much needed bank regulatory enlightenment arrives soon.

Sir, Caroline Binham and Laura Noonan informs that “The Basel Committee on Banking Supervision said yesterday it had dropped a plan to ban banks from relying on rating agencies when they calculate risks in their portfolio” And with that “The banking lobby has beaten back a global reform plan that it claimed would result in a “substantial” increase in capital”, “Lenders win Basel U-turn on assessing risk” December 11.

I am not sure because the Basel Committee recently issued a Consultative Document on the issue and we should wait what could come out of it.

Anyhow, what is completely missed is that banks already look at credit ratings when setting their risk premiums and the amounts of exposure. And so when also having to use the same credit rating to set their capital requirements, means that the credit risk info contained in those ratings is excessively considered. And any risk, even if perfectly perceived, causes the wrong actions if excessively considered.

The day the Basel Committee wakes up to the dangers of distorting the allocation of bank credit to the real economy based on credit risks, something that has not one iota to do with whether borrowers pursue objectives that deserves fair access to bank credit, that day everything will change.

For the good of the real economy and of the perspectives for our young to find good jobs in the future, let us pray that day of regulatory enlightenment arrives soon.

http://subprimeregulations.blogspot.com/2015/12/the-basel-committee-insists-in-not.html

@PerKurowski ©

Mark Carney: But what are we to do with the irresponsible and unethical behavior of bank regulators?

Sir Caroline Binham and Martin Arnold reports that “Mark Carney, the BoE governor, announced an end to “the age of irresponsibility” and ethical drift, with the introduction of tougher criminal sanctions for market abuse that will be extended to parts of the financial system that have been left alone.” “UK bank governor outlines tough rules” June 11.

Great! That has been long overdue.

And it is also great that Mark Carney acknowledges “the BoE itself was to blame for some failings in markets — including both the Libor and forex scandals — [and] wants a new code of conduct to extend principles of the senior managers’ regime to his staff all the way up to the governor.

But, what are we to do with the irresponsibility and ethical drift of bank regulators? I refer to those who have abused and manipulated credit markets, by imposing and keeping in place credit-risk weighted capital requirements for banks. To thereby allow banks to earn higher risk adjusted returns on equity when lending to those perceived as safe, than when lending to those perceived as risky, is both highly irresponsible and highly unethical.

It is highly irresponsible because it completely distorts the allocation of bank credit to the real economy. That affects negatively the opportunities for our young and unborn to find decent employments.

And it is highly unethical because it favors those already favored by the banks, and discriminates additionally against the access to bank credit of those already discriminated by the banks. And that, by killing opportunities, is a first class inequality driver.

Mark Carney, you are the Chair of the Financial Stability Board, and therefore you share in the responsibility for the above, tell us, what do you suggest we do with you?

@PerKurowski

William Coen. Do you really think that government bureaucrats use bank credit more productively that SMEs and entrepreneurs?

Sir, I refer to Laura Noonan, Caroline Binham and Barney Jopson reporting that “Basel group faces up to compliance challenge” May 26.

We read David Green stating that still to be answered “is whether the new regulations actually does what it was intended to do and whether the side effects are acceptable, whether they are intended or not”. And that is something that does not sound quite unimportant eh?

But then William Coen, head of the Basel Committee’s secretariat, tells us “We hear quite often about unintended consequences of our reform when, in fact, the effects of our reforms are actually fully intended; some just don’t like them”.

But here then is a question to Mr. Coen.

The Basel Committee uses credit-risk weighted capital requirements for banks were the weight of governments is 0% while the weight of SMEs and entrepreneurs is 100%... and that is something quite discussable, especially in these days when governments announce they need to use financial repression in order to impose informal haircuts on their obligations.

But worse, much worse, looked at from the opposite side, it tells us that the Basel Committee for Banking Supervision feels that the risk of bank credit not being used productively is 0% for government bureaucrats, and 100% for SMEs and entrepreneurs.

Is that really what you believe and have intended to say Mr Coen? Are you a communist?

@PerKurowski

Though we cannot fine bank regulators, we should at least shame them, for the mother of all bank-credit markets riggings.

Sir, I refer to FT’s front-page report by Gina Chon, Caroline Binham and Laura Noonan “Six big banks fined $5.6bn over rigging of forex markets”, May 20.

Andrew McCabe, FBI’s assistant director is quoted saying “The activities undermined transparent market-based exchange rates that serve as a critical benchmark to the economy.”

Undoubtedly, the rigging of foreign exchange rates, and of the Libor rate, needs to be condemned in the strongest way… But, for that to really happen, it must be through mechanisms that does as a minimum not cause Lex describe these in terms of being “astonishingly opaque”… and commenting in “Bank fines: the wrong reaction” that “how the agencies decide what fines to impose is a mystery to everyone, the banks included”.

But, that said, in terms of the real consequences to the real economy, all that fraudulent market rigging is peanuts when compared to the mother of all market riggings, that which bank regulators, probably unwittingly, did to how bank credits were allocated.

I mean let’s look at Basel I, II and III. For the purpose of deciding how much equity a bank has to hold against a credit they establish: Sovereigns = 0% risk weight; Citizens = 100% risk weight. Really, is that not as big as market riggings come?

How much more bank credit at low rates did not governments, the regulators’ bosses, receive because of that? How much less bank credit did not all the SMEs, entrepreneurs and start-ups around the world, receive because of that.

Of course we cannot fine regulators (unless we can prove bad intentions… like ideological manipulation)… but should we not shame them at least?

@PerKurowski

The most incapable and failed risk-manager in history, insists on helping banks to manage their risks.

Sir, Caroline Binham and Lindsay Fortado report that US regulators now include qualitative assessments of banks’ risk-management, “Banks still struggling with finance ethics” May 15.

What a laugh… how sad. If ever there have been incapable and failed risk managers, those are the current bank regulators. Here follows but some illustrations of it.

First, they set the equity requirements for banks based on the perceived risks of bank assets, more-risk-more-equity and less risk less equity, as if that has any real bearing on the risk of a bank. The risk of a bank depends on how banks manage the risk of their assets. And, if push comes to shove, since all major bank crises have been caused by excessive bank exposure to what was ex ante perceived as “safe”, the opposite requirement, less-risk-more-equity, would have been more appropriate.

Then they also entirely ignored the risk that their regulations would distort the allocation of bank credit in to the real economy, in such a way it would weaken it… and that nothing is as dangerous to banks as a weak economy.

Sir, frankly, had there been no regulators or bank regulations how many European banks do you think would have been allowed to leverage 20 to 50 times or more their equity? Does not zero sound like a good guess?

In 1999 in an Op-Ed I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”.

And we still allow these clearly failed bank regulators to play Gods. Well shame on us!

@PerKurowski

Senator Richard Shelby. Ask Fed and FDIC, why Alabama’s borrowers are denied a fair access to bank credit.

Sir, I refer to Barney Jopson and Caroline Brinham’s “Republican resist global insurance role”, April 29.

Richard Shelby, chairman of the Senate banking committee is quoted with: “An international regulatory regime should not dictate how US regulators supervise American or US based companies”.

It is a quite relevant opinion, but Senator Shelby should start by asking the Fed and the FDIC the following:

Why on earth are Alabama’s state-chartered banks allowed to lend to well-rated corporations elsewhere, or to sovereign governments, holding less equity than when lending to their own local SMEs and entrepreneurs?

Does that not enable sovereign governments and members of the AAArisktocracy to generate higher risk adjusted returns on bank equity than what Alabama’s borrowers can do?

Does that not mean that Alabama’s borrowers are refused fair access to the credits of their Alabama banks?

Senator Richard Shelby faces a hugely important challenge. But he should know that challenge extends way beyond the insurance sector and the Financial Stability Board. He should start with banking, and with the Basel Committee, that committee that so much influences US bank regulations, but that is not even mentioned once in the over 800 pages of the Dodd-Frank Act.

@PerKurowski

The haircuts that will result from the mother of all market riggings... will be staggering.

Caroline Binham writes about the Bank of England’ “potential rigging of money market auctions”, “BoE embroiled in fraud probe of crisis-era liquidity moves” March 5.

Sir, whatever those rigging could have been, they must be really minuscule when compared to the mother of all riggings; that which occurred when regulators rigged bank regulations in favor of the sovereigns, to the extent of considering some of these infallible.

Sir, when a sovereign takes on too much credit, it will either pay you back a fraction, this is known as a regular haircut, like that Greece wants to do; or give you a negative interest rate haircut, like Germany does; or give you an inflation haircut, as that which they officially target; or give you a tax increase haircut (we citizens hold de-facto CoCos of our sovereigns); or give foreign currency based investors, a devaluation haircut, like that currently given by the Euro. And there might even be other haircuts I have missed.

And so, giving many sovereigns a zero risk-weight for the purpose of setting the capital requirements for banks, defies all rationality, and can only be explained in terms of the regulators rigging the regulations; whether for ideological reasons or only to ingratiate themselves with their bosses, the governments.

The consequence of a zero risk weight is that banks are able to leverage their equity immensely when lending to the sovereign and so, guaranteed, banks will lend the sovereign too much at too low interest rates… and so the consequential sovereign haircuts, in any which shape or form they come, will be staggering large.

Especially so when governments are, by for instance Martin Wolf, egged on to take advantage of “favorable market conditions for public borrowings”, in order to take on major infrastructure projects.

Nowadays, in banking, more important than the “Know your client” is the “Know your equity requirements”

Sir, it used to be that, beside general cost control, negotiating with the client was all a bank did to look for an acceptable return on its equity. Those were pre-Basel Committee days when any bank asset generated the same equity requirement.

Today the most important return on equity maximizing tool is the equity minimizing game. Today, more important than the “know your clients”, is the “know your equity requirements”.

And that is tragic. When we read Caroline Binham and Martin Arnold reporting on February 25 “Big banks face fresh capital clampdown” our heart goes out to all those legitimate credit aspirations of borrowers, which will be turned down, only because these generate for the bank higher equity requirements than other operations.

And Sir, the most amazing thing with it all, is that regulators are not even aware of how much their credit-risk weighted equity requirements distorts the allocation of bank credit to the real economy.