Mr Grainger has regulators who did not lose their pensions to thank for losing his life savings with Northern Rock

Sir, Emma Dunkley writes about how Dennis Grainger, a one-time Northern Rock manager, lost his savings when the bank collapsed. “10 Years On: The victim: ‘It’s left a nasty taste in our mouths’” September 2.

One sad part of the story is that it will most often be retold by ex-post/Monday quarterbacking besserwissers, in terms of Mr Grainger taking excessive risks, something that no matter his wife’s concerns, he was not doing in any for him comprehensible way. And what’s wrong with one man putting all his eggs in the same basket in a crazy world in which regulators give banks huge incentives to put all their eggs in the same “very safe” basket?

That of allowing banks to leverage their equity (capital) 60 times or more with the net margins obtained from what was perceived, decreed or concocted as safe, like AAA rated and sovereigns, that was what in a huge way contributed to bring Mr Grainger’s “safe” Northern Rock down.

Did regulators lose their pensions because of that? No, they even got promoted. Many of them are even hailed as heroes when with QEs and ultra low interests they are kicking the crisis can over to next generations. It is truly an unfair world. It leaves indeed a very bad taste in my mouth.

PS. That FT, in its “10 years on”, is unable to pinpoint the main causes for the crisis, does only worsen that bad taste in my mouth.

@PerKurowski

BoE, the real economy also needs to be stress tested, for how efficiently banks are allocating credit to it.

Sir, Emma Dunkley reporting on BoE’s stress testing of banks writes: “The new “exploratory” test, which will be carried out every other year, will assess banks’ resilience to a wider range of risks beyond those emanating from the financial cycle — such as persistently low interest rates and high costs…The new assessment will include weak global growth, continuing low interest rates, falling world trade…”, “BoE set to raise the bar on resilience” March 28.

Again a stress test on how the banks might do because of the economy, but still with no regulator (or central banker) interested in stress testing how the economy might do, because of the banks.

When will a bank regulator ask whether banks are lending enough, and on sufficiently reasonable terms, to SMEs and entrepreneurs? The day he would respond that with a definite “NO!”, that day the regulator might begin to understand what damages his risk weighted capital requirements for banks cause the real economy.

My questions!

PS. Emma Dunkley also writes: “Last year, UK banks had £19bn of impairments on credit cards, compared with £12bn on mortgages.” That might be… but does no one look at the risk premiums charged in both cases?

@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

Any regulator stress-testing banks that ignores what should be on the balance sheets and is not, should be fired!

Sir, Emma Dunkley and Martin Arnold report on the recent stress testing of British banks performed by Bank of England, “Stress test flop fuels criticism of turnaround efforts at RBS” December 1.

Just want to remind again that bank regulators who only look at what is on the banks’ balance sheets while ignoring entirely what should be there if the banking needs of the real economy were served, should be fired.

And of course the BoE has most probably not done that. That I say because Mark Carney is one of those regulators who see nothing wrong with capital requirements for banks that uses a risk weight of zero percent for the sovereign and 100% for SMEs and entrepreneurs.

Sir, should the stress testing of our banks also say something about their relative usefulness?

In 1997 I ended an Op-Ed with: “If we insist in maintaining a firm defeatist attitude which definitely does not represent a vision of growth for the future, we will most likely end up with the most reserved and solid banking sector in the world, adequately dressed in very conservative business suits, presiding over the funeral of the economy. I would much prefer their putting on some blue jeans and trying to get the economy moving.”

Sir, I have no detailed knowledge about British banks, but what if RBS was the bank serving Britain’s real 

PS. We need some outstanding Main-Street/Real Economy knowledgeable, to stress test bank regulators

@PerKurowski