FT, how can you with a straight face hold that bank capital buffers in EU are more ample than they were five years ago?

Sir, you write “True, banks’ capital buffers are more ample than they were five years ago”, “EU bank regulators need to do more to foster faith”, August 1.

More ample? That is just if you believe the regulators’ risk weights are correct… something which was evidenced in 2007-08 they were not.

Because, if you read EBA’s stress result, you should have read that “the aggregate leverage ratio decreases from 5.2% to 4.2% in the adverse scenario”.

And in terms of real leverage that means that in their “adverse scenario” the bank leverage of equity increased from 19.2 to 23.8 to 1… and that’s just the average!... Which means the real capital buffers, those of real unadulterated life, are just smaller.

@PerKurowski ©

Is it ok for a regulator, like EBA, to withhold information from “experienced investors”?

Sir, in previous letters to you, here and here I have expressed concern about what would be the legal responsibility of bank regulators, towards any coco-bond investors, if they withheld important information with respect to the possibilities of those bonds being converted into bank equity.

And now Sam Fleming and Martin Arnold report that the European Banking Authority, EBA, is also expressing some concerns on this issue, “European regulators seek to limit retail sales of bank credit”, May 20 (though not in the US FT issue).

But something is not clear… after the article refers to several reservations about these cocos being sold to retail clients, it informs that “Britain´s regulator, the Financial Conduct authority, has said it plans to consult on new rules to ensure cocos are only marketed to experienced investors”

Would that imply that a regulator can withhold important information from “experienced investors”? If so, just in case, for the record, I have no knowledge about investments whatsoever.

You’ve got to be kidding. Did you really hope the economy could recover sturdily without banks taking risks on the “risky”?

Sir, FT’s Special Report, World Economy, October 12, subtitles “Hopes turn to fear and uncertainty”. 

But it was regulatory risk-adverseness that saddled our banks with excessive exposures to what was ex ante officially perceived as not risky, because that required much less capital than lending to the risky, which set off this crisis. In other words, there was an excessive regulatory fear of the “risky”. 

And so what “hopes” do you refer to? That we could get out of this monstrous economic imbroglio by continuing having fearful regulators telling the banks to avoid more than ever taking a chance on those perceived as “The risky” and concentrate all their lending on “The Infallibles”? While government simultaneously injected money in the economy as there was no end to it? You’ve got to be kidding! Did you really hope that would work? 

No. Hope means understanding the need for risks and being willing to take these. While your banks are governed by regulators with a sick attitude toward risk, we are simply doomed. 

That the “world economy was hamstrung by uncertainty, which was preventing companies from investing” as Olivier Blanchard of the IMF says, sounds like a cruel joke to me. Just consider how much bank regulators have hamstrung the banks from lending to the risky small businesses and entrepreneurs, by, in times of huge scarcity of bank equity, requiring the banks to hold much more equity when doing so, than when lending to infallible sovereigns. 

And FT has not been willing to call out the sissines of that! “Uncertainty”? Ha! As if economic growth could be turned into a riskless affair? Where did you, and the banks regulators you seemingly so much admire, get such a crazy idea?