What if an Eric Schneiderman dared to stand up against those causing the greatest unfairness in the financial markets?

Sir, Kara Scannell, James Shotter, Daniel Schäfer and Alice Ross report on how New York attorney-general Eric Schneiderman is investigating unfairness in the financial markets, “Banks hit by dark pools probe” July 30.

But Sir, you know that those perceived as “absolutely safe” from a credit risk point of view, and who are therefore already the beneficiaries of lower interest rates, larger loans and on softer terms, get even lower interests, even larger loans and on even softer terms, because regulators allow banks to hold less capital against assets deemed as absolutely safe.

And you also know that those perceived as risky from a credit risk point of view, and who are therefore already paying higher interest rates, getting smaller loans and must accept harsher terms, are charged even higher interests, get even smaller loans and must accept even harsher terms, only because regulators require banks to hold more capital against assets deemed as risky.

And so I ask you Sir, does not the regulatory distortion produced by the risk-weighted capital requirements cause more unfairness in the capital markets than all the dark pools, and all the high frequency trading, and all the Libor manipulation and all the other misdeeds currently scrutinized put together? Of course it does!

What a shame there are no Attorney Generals willing to stand up to bank regulators discriminating based on perceived risk (in the Home of the Brave) … even when equipped with such formidable tools as the Equal Credit Opportunity Act – Regulation B. and all other non-discrimination and non-profiling rulings.

PS. Yesterday I was also censored in my homeland :-)

When are they going to fine the bankers and not, suicidally, fine the banks?

Sir, right now, when the European banks are leveraged to the tilt and unable, because of faulty capital requirements and lack of capital, to finance those in the real economy most in need of bank credit, we read, reported by Alex Barker and Daniel Schäfer that “Brussels poised to announce hefty rate-fixing fines on global banks” December 4.

When are they going to fine the bankers and not the banks? Don´t they know that in these days of so little bank capital, derived from regulators requiring so little bank capital with Basel II, that every fine a bank pays, translates into less bank credit… primarily to those medium and small businesses entrepreneurs and start-ups we most need to have access to bank credit in competitive terms?

Do not help banks play the liquidity card trying to avoid higher leverage ratios

Sir, Daniel Schäfer begins his “Fix the contradictory rules pushing banks to be riskier”, of August 6, with the question “Can regulations make banks less safe?” And the answer is: Absolutely!

The current crisis was entirely the consequence of bank regulations, primarily Basel II, which allowed banks to hold extremely little capital/equity when lending to or investing in what was perceived as absolutely safe; which meant that banks could earn amazingly high expected risk-adjusted returns on equity when lending to or investing in what was perceived as absolutely safe; which meant that banks went overboard lending to or investing in what was perceived as absolutely safe, like to “infallible sovereigns” and the AAAristocracy; and which finally meant that when the problems arose, like with loans to Greece or with investments in securities collateralized with lousily awarded mortgages to the subprime sector, the banks stood there completely naked without any capital/equity.

The leverage ratio is a tool now used to correct somewhat for the above described miss-regulation, and some banks simply do not like it since it requires them to hold more capital/equity.

From reading Schäfer’s article, it is clear some banks are playing the liquidity card in trying to avoid the threat of even higher leverage ratios, as those proposed for example by Thomas Hoenig of FDIC. I hope the regulators, and the press, do not fall for this dirty trick.

Liquidity for banks was usually provided by the central bank’s discount window, and all it took for the bank in order to access that window, was to have good assets, of basically any kind. The underlying problem with Basel III liquidity requirements, is that is does nothing to solve the problems of Basel II, but layers on new regulations which are also basically based on ex ante perceived risks, on top of the old capital requirements, and thereby distorts and confuses even more.

Schäfer also writes banks will now as a consequence of adjusting to leverage ratios have zillions less in government bonds and deposits in other banks, but the real question is, why should banks have zillions in this type of investments? And what about all the absolutely essential loans to “The Risky”, like the small and medium businesses and entrepreneurs that are not given precisely because of the absence of a non-discriminatory and all encompassing leverage ratio? That to me sounds like a much more important issue, in order to make the real economy less risky, and which is really the best way of making our banking system less risky.

Barclay’s has and projects leveraging its equity 45-35 to 1 times. Would not 10-15 to 1 be sufficient?

Sir, I refer to Patrick Jenkins and Daniel Schäfer’s “European banks move to bolster equity level”, as well as to The Lex Column note on Barclays, July 31.

Both mention the current leverage ratio of 2.2 percent of Barclay and the recent goal of 3 percent established by global regulators.

Those leverage ratios, translated to usual historic equity leverage indicators, those used in the pre-risk weighting days of the Basel Committee, would be 45 to 1 and 33 to 1 respectively.

Sincerely, do you not believe these leverages to be somewhat on the high side? Would not leverages between 10 and 15 be more than sufficient?

Lex holds that having to move from 2.2 percent leverage ratio to 3 percent “has delayed the date when Barclay’s return on equity will beat its 11.5 per cent cost of equity by a year to 2016.”

And that also begs the question whether shareholder would not be happy with a lower return of equity, if that came hand in hand with much lower assets to equity ratio?

How will markets react when informed that Deutsche Bank is leveraged 33 to 1?

Sir, Daniel Schäfer, on July 22, reports that Deutsche Bank is to cut assets for stricter capital rule aiming for a 3 percent loan to equity ratio. And “stricter” is there sort of laughable.

On January 2015, according to the Basel Committee, banks will have to report their straight leverage ratio. Can you imagine how Deutsch bank creditors, made aware they should not expect to be bailed out, will react when they read that Deutsch Bank is leveraged 33 to 1?

If 33 to 1 leverage is stricter, how flexible is it now?

We need to see the hiding-behind-regulatory-risk-weighting index of the banks

Sir Patrick Jenkins and Daniel Schäfer at the end of their “Banks in cash calls to meet Basel III” state the caveat with respect of the numbers shown that “Regulators [will] either raise risk-weightings and/or give more emphasis to nominal balance sheets.” Indeed, but it can also be, like the current crisis has clearly evidenced, that the risk-weights could also simply turn out to be very wrong.

And that is why I consider the illustration that shows Basel III core tier one capital ratios of 12 large banks to be quite opaque. As a minimum, next to each Basel III ratio they should have given us each banks capital to nominal balance sheet ratio.

That way, by dividing the first ratio by the second (or the other way round) we can build an index which allows us to identify how each bank hides behind risk-weights, whether these are calculated by themselves or by the regulators.

In order to keep the lights on you need to reduce capital requirements

Sir Daniel Schäfer in “Keeping the lights on” November 11, writes “Bankers say that there is a time bomb ticking that could explode next year, when banks, already under pressure to deleverage, may be tempted to cut credit commitments on the back of companies presumably dire 2009 results”.

It is precisely because of that highly countercyclical “pressure to deleverage” that I am begging for the financial regulators to urgently decrease the capital requirements for all those BB+ or lower rated, or unrated, and that having in no way been the source of this crisis are now the most castigated by the need to rebuild the equity of the banks.

How will the fines from Siemens be distributed?

Sir Daniel Schäfer reports on December 16 that Siemens has to pay $1.4bn in fines to US and German authorities in order to settle bribery inquiries in the United States and Germany related to Venezuela, Argentina, Iraq, Israel, Russia and Bangladesh. How much of these fines will the real victims, the citizens of those countries that were the object of the bribery receive and how will these be distributed?

A corruption of a third kind?