Let’s be very wary of Big Tech and Governments forming Big Brother Joint Ventures

Marietje Schaake holds that “regulators should be able to assess all sectors for harms done to democracy, using specified skill sets… Empowering them to probe, investigate, discover and assess companies’ respect for democratic principles would ensure broader and more explicit accountability” “Weakened democracy is another harm caused by Big Tech”, October 15.

That sounds very reasonable but it behooves us citizen to know that about the worst thing that could happen to our democracies, is the formation of Big Brother Joint Ventures between Big Tech and politician/government bureaucracy.

In the same vein, on October 13 Chris Giles in “Rich nations draft blueprint for $100bn revolution in corporate tax” reported on the large appetite that exists when it comes to taxing “the likes of Google and Amazon”. Sir, do we really want to see the taxman having financial incentives in the exploitation of our personal data? We do not.

Now, if all advertising revenues generated by exploiting such data was shared 50-50 with us who supply the data, for instance by means of helping to fund an unconditional universal basic income, that would much better align the incentives of all participants.

But Sir, this does not mean I see no role for regulators when it comes to Big Tech. On the top of my mind I can list:

That they help guarantee we’re always receiving messages from parties that we can easily and accurately identify.

That they help us to be targeted as precisely as possible, so that our scarce attention span is not wasted in irrelevant/useless advertising/information.

That they do their utmost to keep out all those redistribution or polarization profiteers who, with their messages of hate and envy, destroy our societies.

Sir, one last question. If an author can get a copyright for a book, should we not be able to get a copyright on our preferences, that which we include in our book of life?

PS. Sir, since soon I’ve written you 3.000 letters on the topic of the incredibly mistaken bank regulations that cause so much societal harm, you must understand that the whole topic of regulations makes me nervous. 

@PerKurowski

IMF, where’s the regulators’ discipline when needed to stop the procyclical risk weighted capital requirements for banks?

Sir, Chris Giles writes that IMF’s Christine Lagarde warning about “70 per cent of the global economy to experience a slowdown in growth… acknowledged that budgetary discipline in good times was difficult for finance ministers to achieve, but necessary to create “fiscal space to act in bad times”. “IMF Lagarde highlights risks to global economy” April 3.

Times are good, lesser the perceived risks; less the capital must banks hold; even though it is a good time to raise bank capital.

Times are bad, higher the perceived risks; higher the capital must banks hold; even though it is a bad time to raise bank capital.

But are regulators doing something to diminish this regulatory pro-cyclicality? No, or absolutely not enough. Why? Because doing so would require to admit that their risk weighted bank capital requirements are based on the nonsense that what is perceived as risky, when place on banks’ balance sheets, is more dangerous to the bank system than what is perceived as safe.

Sir, that slow down Ms. Lagarde speaks of is much the result of the obese growth that results from excessive exposures to what is perceived as safe. Muscular, sustainable growth requires, by definition, a lot of risk taking.

God make us daring!

@PerKurowski

My tweet on why the world is becoming a much angrier place than what’s warranted by the usual factors.

Sir, Chris Giles writes “Britain is an angry place: furious about its politics, unsure of its place in the world and increasingly resigned to a grinding stagnation of living standards” “Anger and inequality make for a heady mix” March 1.

Giles analyzes the increasing discontent as a function of the economy, in terms of economic growth, inflation, income inequality, weak productivity and employment rates, whether existing or expected.

That is certainly valid but, sadly and worrisome, there is much more to the much higher levels of anger brewing than could seem be warranted by that. That goes also for the rest of the world. 

Sir, what is happening? Here is my own tweet-sized explanation of that.

“Shameless polarization and redistribution profiteers, sending out their messages of hate and envy through social media, at zero marginal cost, are exploiting our confirmation bias, namely the want or need to believe what we hear, up to the tilt. It will all end very badly.”

https://perkurowski.blogspot.com/2010/05/speakers-corner-speakers-have-moved-to.html

@PerKurowski

For social harmony, in our time, we need a big enough and a small enough universal basic income.

Sir, Chris Giles refers to a “1994 OECD study [which] contained a warning of the dangers in store for countries that failed to tackle problems in their labour markets. “It brings with it unravelling of the social fabric.” “Improve employment rates to tackle inequality” February 15.

Giles opines, “Flexibility and social protection is a winning combination for advanced economies. While it does not prevent all employment problems, whether you take a right-of-centre “work not welfare” attitude or a left-of-centre “a hand up not a handout” stance, in general the combination works.”

I agree! An unconditional universal basic income, large enough to allow many to reach up to whatever jobs are available, is “a hand up not a handout”.

And an unconditional universal basic income, small enough so as not allow many to stay in bed, is also “work not welfare”.

So what’s keeping an UBI from being implemented?

To begin there’s not sufficient recognition of the real conflicts, basically a class war, between those who having a job want better pay and those who want a job at any pay.

But, first and foremost, it is those who profit, politically and monetary, on imposing their conditionalties when redistributing tax revenues, who strongly oppose a UBI, since it, naturally, would negatively affect the value of their franchise.

PS. The Chavez/Maduro regimes are clearly outliers among the redistribution profiteers but just as an example I once calculated that the 40% poorest of Venezuela had received less than 15% from the Bolivarian Revolution than what should have been their allotment had Venezuela’s net oil revenues been shared out equally to all. On the other side many of the odious profiteers pocketed many thousand times what should have been their share.

@PerKurowski

IMF, what are tariffs on billions of trade, when compared to tariffs and subsidies on trillions of bank credit?

Sir, Chris Giles, James Politi and Stefania Palma write about concerns during recent IMF meetings in Bali, “With the world’s two largest economies slapping tariffs on $360bn of goods so far this year, and possibly more to come” “Geopolitical tension casts pall over annual IMF meeting” October 15.

Last year I read somewhere that the just world’s 10 largest banks combined had over $25 trillion in assets. So when I think on how much the allocation of those assets might be dangerously distorted by the risk weighted capital requirements, I find it hard to understand that “the world’s two largest economies slapping tariffs on $360bn of goods so far this year”, was of so much concern during the recent IMF meetings

Sir, get it, the risk weighting of banks’ capital requirements, for bank protection purposes, translates de facto into tariffs and subsidies that will steer the allocation of bank credit.

The damage, by promoting banks way too much to be into banks “safe” AAA rated securities, residential mortgages and loans to sovereigns, while de-incentivizing loans to “risky” entrepreneurs and SMEs, is immensely worse than what the current trade-wars, sort of Lilliputian vs. Blefuscu in comparison, could produce.

Sir, again, for the umpteenth time, what the risk weighted capital requirements for banks guarantee is: 

Especially large exposures to what’s perceived as especially safe, against especially little capital, which dooms or bank system to especially severe crises. 

Especially low exposures to what is perceived as risky, like loans to entrepreneurs and SMEs, which dooms our economies to weakness and to not being able to reach their potential.

@PerKurowski

We need to rethink productivity data, in light of so many “working hours” spent consuming distractions.

Sir, referencing Chris Giles’ and Gavin Jackson’s “Surge in low-value jobs magnifies UK productivity problem” of August 13, I believe that whenstating “increases in low-wage jobs in bars, social work and warehouses have served to hold back UK productivity growth” it hints at sort of causation that might not really be there.

I say so because we have entered a new era that requires redefining entirely the ways we measure productivity. 

Some months ago, in Bank of England’s “bankunderground” blog, we read a post by Dan Nixon titled “Is the economy suffering from the crisis of attention?”. It said, “With the rise of smartphones in particular, the amount of stimuli competing for our attention throughout the day has exploded... we are more distracted than ever as a result of the battle for our attention. One study, for example, finds that we are distracted nearly 50% of the time.”

Nixon, answering the question posed in the title wrote, “The most obvious place to look would be in productivity growth, which has been persistently weak across advanced economies over the past decade.”

But, what if instead of being recorded as distractions during working hours, these were to be recorded as a private consumption that reduces the effective working hours? Would that not increase GDP and reduce working hours, and thereby point instead to a dramatic increase in productivity?

In the same vein, would then not real-salaries, instead of stagnating, have been increasing a lot?

And what about our employment and unemployment data if the time used to consume distractions during working hours would not be counted as work? 

Sir, it behooves us to make certain how we measure the economy gets updated to reflect underlying realities. 

Perhaps then we are able to understand better the growing need for worthy and decent unemployments.

Perhaps then we are able to better understand the need for a Universal Basic Income, not as to allow some to stay in bed, but to allow everyone a better opportunity to reach up to whatever gainful employments might be left, like those “low-wage jobs” that it behooves us all, not to consider as “low value jobs”

@PerKurowski

How long are you going to allow statist bank regulators subsidize the public sector borrowings with a zero percent risk weighting?

Sir I refer to Kate Allen’s and Chris Giles write “The total stock of OECD countries’ sovereign debt has increased from $25tn in 2008 to more than $45tn this year” “Rising tide of sovereign debt to hit rich nation budgets, warns OECD” February 23.

I do not know what the total OECD debt was in 1988, but the US public debt was t$2.6 trillion when then statist bank regulators assigned it a 0% risk weight. At end of 2017, much because of the subsidies imbedded in that 0% weight, US’s public debt was now US$20.2 trillion. It still has a 0% risk weight.

In 2004, in a letter you published I wrote: We wonder how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector. In some developing countries, access to credit for the private sector is all but gone, and the banks are up to the hilt in public credits.

I came then from a development country, Venezuela, but that comment clearly applies to the OECD too.

In December 2009, on the eve of the new decade, FT also published a letter in which I wrote: “My worst nightmare is that unmanageable Versailles-type public debts will become fertile ground for those monsters that thrive on hardships”. That nightmare is only getting worse and worse.

@PerKurowski

Andy Haldane, I am an economist too, but I can still not make head or tails out of your bank regulations. Please enlighten me with BoE’s “EconoMe”!

Sir, Chris Giles writes that Bank of England’s chief economist Andy Haldane argues that economists must work harder to help the public understand and accept their message. “If economics or economic policy is elitist and inaccessible to most people, it is not doing its job,” he said. “Economics should be more accessible” November 28.

Absolutely! So please could Haldane explain to me why regulators want banks to hold the most capital for when something perceived risky turns out risky, when it is when something ex ante perceived as very safe ex post turns out to be very risky, that one really would like banks to have the most of it?

The risk weighted capital requirements allow banks to leverage differently different assets, and thereby allow banks to earn different risk adjusted returns on equity on different assets, must distort the allocation of bank credit to the real economy. Some, like for instance “risky” entrepreneurs are paying with less access to credit for the regulators favoring “safe sovereign, AAArisktocracy and house financing. That must not be helpful for creating new jobs. Am I wrong? If am not, why does this seem to be of no concern to regulators?

And talking about favoring, who authorized the economists to suddenly take upon themselves to decide that the risk weight of the sovereign was 0% and that of citizens 100%? Is that not just outrageous statism? Has that not caused governments getting credit at much lower rates that they would otherwise have gotten? Has that not caused governments to take on much more debt than they would otherwise have been able to do?

If Haldane does not know the answers to these questions perhaps he can ask Mark Carney, Mario Draghi, Jaime Caruana or Stefan Ingves.

And if those elite experts can’t provide him with a satisfactory answer, perhaps he should sit down and listen to me. I as one economist to another would willingly explain to him the regulatory lunacy he is involved with. For a first session of that, Haldane could prepare reading THIS:

PS. And at FT you are all also cordially invited. Since you have mostly ignored, and even hushed up my arguments, I know that if Haldane proves me wrong, you will all feel tremendously alleviated.

@PerKurowski

When a loan to buy a house is worth more to a bank regulator than a loan to a job-creator, things cannot end well.

Sir, Chris Giles writes: “The reason why we have more “boomerang families” and grown-up kids applying to “the bank of Mum and Dad” is because forming a new household is so expensive for young people. Much pricier than it was for those of us who bought houses in the 1990s.” “However you analyse it, housing is in a mess” November 10, 2017

With Basel II of 2004, bank regulators, assigning a 35% risk weighting of the basic 8% capital requirement, allowed banks to leverage their equity 35.7 times to 1 when financing residential mortgages. But if financing an unrated 100% risk weighted entrepreneur, those who could help create the jobs our young needs to be able to buy their own houses, then the banks were only allowed to leverage their equity 12.5 times to 1.

So if entrepreneurs might have had a 25% possibility of having their credit applications approved in the old good days of one capital for all and all for one capital, now that could have been reduced to 5%.

So should we really be surprised if our young ones end up living without jobs in their parents’ basements?

So should it surprise us if those young one day say: “We were cheated. Ma-and-pa, you move down to the basement, now it’s our time to live upstairs”

@PerKurowski

Risk-weighted capital requirements for banks favoring the sovereign, artificially lowers the neutral/risk-free rate

Sir, Chris Giles writes: One “fundamental problem in central banking is that estimates of the neutral rate of interest — seen as the long-term rate of interest that balances people’s desire to save and invest with their desire to borrow and spend — appear to have fallen persistently across the world.” “FT Big Read. IMF Meetings: Setting policy in the dark” October 12.

That has an explanation:

Banks are allowed by the regulators to hold less capital against loans to the government (sovereign) than against loans to the private sector.

That means that banks are allowed to leverage more with loans to the government than with loans to the private sector.

That means that banks can earn higher risk-adjusted returns on equity with loans to the government than with loans to the private sector.

That means that banks, when compared to what they would have done in the absence of these distortive regulations, lend more to the government and less to the private sector; especially to the “riskier” part of it, like unrated SMEs or entrepreneurs.

That means there is a downward pressure on the interest rate on loans to the government, and, since these signify for the most a reference of the risk-free rate, that pulls all rates down from what should be their ordinary level.

And when that regulatory pulling down of rates is topped up with central banks with their QEs loads of government debt, the drop in the “risk-free” floor rate becomes truly important.

Sir, IMF and central bankers have been blind for a very long time to the distortions produced by the risk weighted capital requirements for banks.

Now and again they seem close to understanding it, like last November during IMF Research conference, but then they lose themselves again.

I guess, as Upton Sinclair Jr. said, “it is difficult to get a man to understand something when his salary depends upon his not understanding it.”

Now the real problem for me with central bankers goes way beyond this issue of the neutral interest rate.

My problem is that central bankers never resolved anything, they just kicked the 2007-08 crisis can forward, and basically left in place the distortions that produced it. So therefore a new crisis, could be an augmented one, just lurks around the corner. Great job guys!

And of course, with respect to central bankers pursuing an inflation marker, like in a greyhound race these pursue an artificial hare, I can’t but agree with Daniel Tarullo’s “Essentially you are setting policy on things you don’t know and can’t measure and then reasoning after the fact”.

@PerKurowski

Mme Lagarde. With regulations that distort the allocation of bank credit, any recovery is on shaky grounds.

Sir, I refer to Chris Giles’ “IMF chief warns of risks to recovery” July 6.

Of course, with regulations that distort the allocation of bank credit to the real economy, any recovery is on shaky grounds.

To help Mme Christine Lagarde of the International Monetary Fund understand the issue, better, I have drafted a short and polite letter she could send to her friends the regulators in the Basel Committee and the Financial Stability Board. Their answer, or their no answer, should reveal a lot. 

Dear regulator.

You set your risk-weighted capital requirements based on the ex ante perceived risks already considered by bankers when determining the size of the exposure and the risk premiums to charge. Could that not imply that perhaps the ex-ante perceived risks are excessively considered?

I often wonder if it would not be wiser of you and your colleagues to set these based on those risk not having been adequately perceived, or that bankers are not capable of manage the risks they perceive; or with an eye to somewhat unlikely but nevertheless potentially catastrophic events.

You and I know that one vital function we expect our banks to perform is to allocate credit efficiently to the real economy. Remembering that context, I wonder if the risk weighting you and your colleagues customarily make in your regulatory function is perniciously, if also unintentionally, distorting capital allocation -- by favoring the safer? past over the riskier? future?

Sincerely,

PS. If they do not answer Mme Lagarde could find a summary of some of the mistakes with risk weighting here.

@PerKurowski

Universal Basic Income panics redistribution profiteers. OECD’s model insists on these targeting better the poor.

Sir, Chris Giles writes: “The modeling exercise by the OECD, the Paris-based organization of mainly rich nations that specializes in cross-national comparisons of policy ideas… shows the simplicity of basic income schemes would come at the cost of a need for increases in taxation, less effective targeting of support on the poorest and large numbers of gainers and losers.” “Basic income ‘would fail to reduce poverty’” May 29.

What can I say? The study is full of self-serving premises like “the right to a basic income would undermine the incentives to work because it would ‘sever links between carefully balanced rights and responsibilities of job seekers’”. There it completely ignores the role of UBI in helping the unemployed, without creating any stigma, to get out of bed in order to capture whatever temp opportunities there might exist in a job market characterized by more and more structural unemployment.

Also when the report concludes, “Large tax-revenue changes are needed to finance a basic income at meaningful levels,” any savings of redistribution costs are clearly ignored, and the “meaningful level for a basic income” is undefined.

Sir, this is clearly a case of redistribution profiteers defending the value of their franchise. That is only to be expected.

@PerKurowski

http://myubi.blogspot.com

It is truly incredible how many dare to ascertain things they can have no real idea of. Fake-opinions?

Sir, Chris Giles refers to that Theresa May ended a conversation with a brusque: “You can have all the evidence in the world, but headteachers have told me grammar schools are good for disadvantaged pupils.” But he similarly says: “Regulators have made the global financial system more resilient by major regulatory reforms. Banks now have much bigger capital and liquidity buffers.” “Evidence beats anecdote in politics as well as economics” May 26.

That is also pure anecdote. Giles can really have no real evidence for what he is opining. During the last years banks might very well have accumulated excessive exposures to what ex ante is perceived as very safe, but that equally could ex post turn out to be very risky. Building up that kind of dangerous exposures, against the least required capital, is precisely what regulators’ risk weighted capital requirements for banks do.

“Labour governments favoured ‘light touch’ regulation of the financial sector” “Light-touch? Nonsense! Fake-fact! Sir, I ask, would you call distorting the vital allocation of bank credit to the real economy to be “light touch” regulation?

@PerKurowski

Would Hollywood allow those responsible for a 2007/08-crisis box-office-flop to walk down a Davos red carpet?

Sir, Chris Giles writes: “Almost all countries are failing to improve growth rates” … Responsive leadership — [is] the theme of this year’s World Economic Forum in Davos” “Economies need to heed wrath of the ‘left behind’” January 17.

And Giles also quotes 1994’s Paul Krugman with…“Productivity growth isn’t everything, but in the long run it is almost everything”

Sir, how can you not leave too many behind, and make it harder for productivity to grow, when regulators give banks incentives to refinance the safer past and present economies, but not to take risks on the “riskier” future.

Their 20% risk weighting for AAA rated and sovereigns like Greece, while handing SMEs a 100% weight handicap, caused the crisis, and has hindered a better recovery.

Neither Hollywood nor Bollywood, would ever have allowed the script writers, producers, actors or directors, responsible for such an box office-flop as the 2007-08 crisis, to walk down the red carpet. Why can those in Davos do so? The answer is that those besserwisser experts are self-appointed, and therefore not subject to be vetted by a box-office… and so now populists looking for votes are vetting them.

PS. I hear there is some confusion going on in the Basel Committee. Some members are nervously starting to ask each other: “Could it really be that what’s perceived safe is riskier for banks than what’s perceived risky?”

@PerKurowski

FT establishment, accept that getting rid of a bank regulation that decrees inequality would also help the worst off

Sir, Chris Giles argues that Mark Carney did not live up to his own admonition last week about that the time has come for frank talk about the downsides of globalisation “Frank talk, not warm words, will help the worst off” December 15.

Indeed, Mark Carney, besides being the governor of the Bank of England, is the current chair of the Financial Stability Board, and so presumably well versed in bank regulations. Nonetheless Carney has refused to be frank about the fact that the current risk weighted capital requirements for banks, distorts horrendously the allocation of bank credit to the real economy, hurting growth and job creation; and all this for no purpose at all as major bank crises are never caused by excessive exposures to something ex ante perceived as risky. That regulation de facto decrees inequality.

But with respect to that FT also decided to ignore my soon 2.500 letters sent over the last decade on the subject of “subprime banking regulations”. One of these days, when all truth about the risk weighing really unravels; FT will need to be frank on its reasons for silencing a voice of criticism.

PS. Here are some simple questions that the “without fear” FT establishment has not dared to ask the bank regulation establishment. Or might it be that the “without favour” part of FT’s motto has its exceptions.

@PerKurowski

Mark Carney, as bank regulator, has no right to talk about an “unprecedented desire for safety”

Chris Giles writes: Mark Carney, governor of the Bank of England, talks about an “unprecedented desire for safety”. “Fed faces dilemma over how high rates should go” December 14.

Hah! Mark Carney is one of those regulators who set the capital requirements for banks based on ex ante perceived risks, and if that’s not an unprecedented run amok desire for safety, what is? Current bank regulators have not failed somewhat, they have failed in such a fundamental way that they should never ever be allowed to even get close to banks again.

Bankers perceive risk, and the more risk they see, the less they lend, and the higher the interest they charge… and yet regulators, if they also perceived more risk, also wanted banks to hold more capital… and so the ex ante perceived risks became excessively considered.

With the Basel Committee’s goggles, the safe seems safer, the risky riskier and the allocation of bank credit to the real economy goes bananas.

@PerKurowski

Since you cannot put up a Leave Britain to referendum, you must force your Parliament to act more forcefully in EU

Sir, Chris Giles, fighting Brexit argues: “some [EU] economic officials have been granted constrained powers to take decisions for the public good… Competition authorities help arrange the playing field on which companies compete. Parliament’s ultimate sovereignty comes in the ability to remove these powers”, “Economists’ rare unity highlights the perils of Brexit” June 16.

But the problem is that many EU issues are considered so remotely, and in such convoluted ways, that parliaments are often not even aware of what is happening.

As an example, and though it is not directly a EU authority, let me refer to the Basel Committee for Banking Supervision.

The BCBS imposed de facto credit risk weighted capital requirements for banks which meant banks could hold assets perceived or deemed as safe against less capital that assets perceived as risky. And introduced a distortion of the playing field where borrowers compete for bank credit. 

What would the chances of the following proposal having been approved by any European parliament?

“By means of regulations, and in order to make our bank system safer, we propose to help banks earn much higher risk adjusted returns on equity when lending to what is safe, like to sovereigns, the AAArisktocracy and the financing of houses; and so that they are given good incentives to stay away from lending to what is risky, like to SMEs, entrepreneurs and citizens in general”

I bet no MP would have even dared to present such proposal for consideration.

And just think of proposing what the Basel Accord of 1988 decided: “The risk weight of the sovereign (the government) is zero percent and that of citizens 100 percent”

But since BoE, where Mark Carney is the current Chair of the Financial Stability Committee, and all other locals involved seem to agree with the above mentioned distortions, you are facing much more than a stay or leave EU issue.

Since you cannot solve it by putting a Leave Britain up to a referendum, you better get your Parliament to work on issues like this, hurriedly, come what may.

I would suggest you start by asking Mark Carney why he feels it is adequate that those assets rated below BB-, speculative or worse, and to which banks would never ever voluntarily create excessive exposures to, should have a risk weight of 150%, while the AAA to AA rated assets, those to which excessive exposures is precisely the stuff that mayor bank crises are made of, these have only a risk weight of 20%.

PS. “Rare unity” between economists does not have to mean they are right. EU is full of problems and I have not seen economists considering much the possible unexpected consequences of a strong rejection of Brexit.

PS. For full disclosure I also belong to those who have had enough with at least quite many of the experts.

@PerKurowski ©

We urgently need one judge hauling a bank regulator to his court, in order to ask him one very simple question

Sir, Chris Giles writes that Raghuram Rajan, the head of the Indian central bank said he was a supporter of stimulus policies to “balance things out” in short periods when households or companies are proving excessively cautious with their spending, but eight years after the financial crisis he said we now “have to ask ourselves is that the real problem”. “Underlying performance suffers from loose policies, says India governor” May 16. About time!

Sir, as you know, for a long time I have held that any stimulus policy is really wasted as long as the risk-weighted capital requirements for banks impede bank credit to flow efficiently to the real economy. Those regulations are just another stimulus for bank lending to “The Safe”, and that is not the kind of stimulus the next generations need.

Those regulations odiously discriminate against the access to bank credit of those perceived as “The Risky” like SMEs and entrepreneurs.

And I would love to haul any of the big name bank regulators, like Draghi, Greenspan, Bernanke, Ingves, Carney or many other, in front of a judge to have him, under oath answering the following question:

Mr. Regulator, current risk weighted capital requirements for banks indicate a risk weight of 150% for what is rated below BB- and of only 20% for what is rated AAA to AA. Do you sincerely believe that what is rated below BB- and that one would therefore presume is not an attractive asset for a bank, to be so much riskier for the banking system than those rated AAA to AA?

If the regulator answers “Yes”, the judge should ask for a detailed explanation.

If the regulator, being under oath, truthfully responds “No”, then the judge should ask: Does that not indicate that there is something fundamentally wrong with the credit risk weighting?

And then persons like me, who for over a decade have not been able to extract an answer from the regulators, would at least have something to work with.

In the case of India, such trial evidence could help us to remind Raghuram Rajan that risk-taking is the oxygen of any development. And of that if some developed countries seem to have had enough of development, and do not want to risk climbing further up their ladder, this does not mean that a developing country should copycat such dumb credit risk aversion.

@PerKurowski ©

The risks with the risk weighted capital requirements for banks distortions' are much larger than those of a Brexit.

Sir, Bank of England’s mandate is to “promote the good of the people of the United Kingdom by maintaining monetary and financial stability” and therefore Chris Giles holds that “The Bank of England needs to speak up on Brexit” April 21.

But there you have BoE steadfastly supporting the Basel Committee’s risk weighted capital requirements for banks, which so dangerously distorts the allocation of bank credit to the real economy.

The merchant bankers that helped England prosper would currently not be able to do so, because all they would be doing, like the rest of banks, is investing in public debt and residential mortgages or lending to some AAArisktocracy.

Now you do not have banks that finance the riskier future, they only refinance the for the short time being safer past.

Frankly, when compared to that regulatory reality, the risks with Brexit, though these could be large, sound minor to me.

Few months ago Stefan Ingves, the current chair of the Basel Committee, innocently used the story of an infamous Swedish warship, the Vasa, in order to illustrate the work of the Basel Committee. Ingves is totally unaware of how applicable that story still is. 

@PerKurowski ©

Why is IMF silent about the fact that bank regulators, slowly but surely, are causing the economies to stagnate?

Sir, Shawn Donnan, Chris Giles and Gabriel Wildau report that “IMF calls for global action to lift demand as China exports fall” March 9.

With the credit risk weighted capital requirements for banks that allow banks to leverage more their equity with what is ex ante perceived as safe than with was is perceived as risky, banks earn higher expected risk adjusted returns on equity on what is “safe” than on what is “risky”. And as a consequence “risky” SMEs and entreprenuers do not have adequate access to bank credit. And that, slowly but surely, must cause the economy to stagnate. There’s no doubt about that.

When you stress test banks, the most important issue could be what is not on banks’ balance sheets.

IMF’s David Lipton warns the global economy is “clearly at a delicate juncture” and that “Now is the time to decisively support economic activity and put the global economy on a sounder footing,”.

And so I ask again: Why does IMF insist on keeping silence on the odious regulatory distortion of the allocation of bank credit to the real economy?

Mme Christine Lagarde: Ask!

@PerKurowski ©