The “risky”, those who regulators deny fair access to bank credit, might welcome back Dominique Strauss-Kahn.

Sir, Anne-Sylvaine Chassany writes about the possibilities of Dominique Strauss-Kahn entering politics again “The discreet redemption of Strauss-Kahn” July 14.

On October 7 2010, during a Civil Society Town Hall Meeting, I asked the then Managing Director of the IMF Strauss Kahn the following:

“Right now, when a bank lends money to a small business or an entrepreneur it needs to put up 5 TIMES more capital than when lending to a triple-A rated clients. When is the World Bank and the IMF speak out against such odious discrimination that affects development and job creation, for no good particular reason since bank and financial crisis have never occurred because of excessive investments or lending to clients perceived as risky?”

And Strauss-Kahn answered: "Well, the question about requirements, a couple of requirements for banks. You know, it's a very technical question and a very difficult one, but the way you asked the question, which is why there any kind of discrimination against SMEs is an interesting way of looking at that. In fact, there is no reason to have any kind of discrimination. The right thing for the Bank is to know whether or not their borrower is reliable, but you can be as reliable being a small enterprise than not reliable when you're a big company. So this kind of systematic discrimination has, in our view, no reason to be.

I have not been able to publicly obtain such a clear answer on the issue of how those who by being perceived as “risky”, are already naturally discriminated against by bankers, are now also odiously discriminated against by regulators. And so at least all the ex-ante perceived risky borrowers could welcome Strauss-Kahn’s return… as he might speak up for their rights of having a fair access to bank credit.

In case you want to view it, here is the link to the video of the conference. My question is in minute 47:35 and Dominique Strauss-Kahn's answer minute 1:01:05

@PerKurowski

Reflect on the dangers that the very real possibility of a bad global coordination could signify.

Capital is intrinsically coward and loves anything triple-A rated. Therefore, when on top of this natural love, the regulators awarded the triple-A rated additional benefits in terms of these generating much smaller capital requirements for banks... the demand for triple-A rated instruments soared. As should have been expected the supply mechanism of the market started to fabricate triple-A rated instruments in enormous volumes... something that should be by definition anathema to a low risk.

There were of course many other economic imbalances that aggravated the final result but this, the excessive belief in that risk should and could be avoided, is why the current financial crisis came to happen.

In February 2000 in an article titled “Kafka and global banking” published in the Daily Journal of Caracas I wrote: “The risk of regulation: In the past there were many countries and many forms of regulation. Today, norms and regulation are haughtily put into place that transcend borders and are applicable worldwide without considering that the after effects of any mistake could be explosive.”

But 10 years later when the above has unfortunately been proved to be too true, Dominique Strauss-Kahn of the IMF, in “Nations must think globally on finance reform” February 18, keeps on going as if nothing has happened writing that “the work of [the Basel Committee and the Financial Stability Board] must be accelerated to harmonise rules that limit excessive risk taking”.

IMF, please, before going forward, reflect more on the dangers that the very real possibility of a bad global coordination could signify to the world.