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

What with Growth and Inequality, if regulators had imposed risk weighted bank capital requirements 150 years earlier?

Sir, you hold that “The IMF and the Peterson economists” who in the latter case is none other than Olivier Blanchard, the IMF’s former chief economist, “should not succumb to defeatism, nor to complaints in the financial markets that loose policy is creating distortions or doing more harm than good” “Concern, not panic, over the global economy” March 12.

But you have succumbed to silence what most creates harmful distortions in the allocation of bank credit to the real economy.

This September 2016, there will be 30 years since frightened regulators concocted the credit risk weighted capital requirements for banks.

By allowing banks to leverage more equity with the safe than with the risky, banks earn higher risk adjusted returns on equity with what is perceived or decreed as safe, than on what is perceive as risky, like for instance SMEs and entrepreneurs.

So let me just ask you again to test if your motto “Without fear and without favor” is for real, or just a marketing ploy.

What do you think would have happened if regulators had imposed such credit risk weighting 150 years earlier?

As I see it there would have been much less of that risk-taking our economies need to grow and move forward in order to not stall and fall.

And as I see it, by denying much more ”the risky” the opportunities of accessing bank credit, inequality would be much larger.

So Sir, I simply cannot understand how you can keep mum on such dangerous regulatory distortion.

Who gave unelected bank regulators the right to call it quits for our Western Civilization? Is that not a reason to panic?

@PerKurowski ©

FT, odious regulatory discrimination against “the risky” is described on you pages; yet you prefer to play dumb and ignore the issue.

Sir FT, amazingly, because it is not a good book, handed over the book of the year award to Thomas Piketty’s ‘Capital in the 21st century’, arguing “it provoked a debate over inequality”.

And yet not a word about regulators who, with their credit risk weighted equity requirements for banks, odiously discriminate the access to fair bank credit of those perceived as “risky”, those already disfavored by bankers, while favoring that of those perceived as “safe”, those already favored by bankers.

Today Ben McLannahan reports that ”Citi is gravitating towards wealthier customers to whom it can offer more products, while holding less capital against them”, "Citi shrinks ’bad bank’ with $4.3bn sale of subprime lender to Springleaf.”

Most probably, notwithstanding your motto, you will sweep this under the rug again.

FT, perhaps you should incorporate “and with humility” in your motto, just as a reminder

Sir, in “After Rev Flowers”, November 20, you write that “UK bank’s woes have lessons for politicians and regulators”. You forgot to include financial journalists in that list. 

For instance, you write that Mr Flowers “overestimated a key capital ratio by a factor of two”. Do you really want me to list all of your journalists who at the outset of this crisis wrote of bank capital ratios seeming to be in line with historical ratios, ignoring that the current were based on risk-weighted assets and not as previously on total assets? Doing so your own journalists (and politicians and regulators), often underestimated European bank capital ratios by a factor of five. 

Be sincere… when did you yourself discover that in fact European banks had real asset to capital leverages of way over 30 to 1 sometimes even over 50 to 1? 

John Gapper was one of the very first to understand what was happening with his “How banks learnt to play the system”; but it took a long time for many others to do so, and some might not even have done so yet. 

But Sir, do not be ashamed, you are not alone. Other actors like the IMF reported on Iceland in December 2008 the following “The banking system’s reported financial indicators are above minimum regulatory requirements and stress tests suggest that the system is resilient.” And that clearly shows IMF had no real idea either about what risks risk-weighing could be hiding or causing. 

But, Sir, perhaps you should incorporate “and with humility” in your motto, just as a reminder.

What does the Financial Times’ motto “Without fear and without favour” really signify?

Over many years I have written letters to FT mentioning for instance that the Occupy Wall Street movement, though correct in many ways, was completely wrong about the location. What they should have occupied is Basel with its Basel Committee for Banking Supervision. 

It was the Basel Committee which, with its capital requirements for banks based on ex ante perceived risk, as perceived by credit rating agencies, favored those already favored, “The Infallible”, like the AAA rated and sovereigns, and discriminated against those already being discriminated against, “The Risky”, which members include small businesses and entrepreneurs. 

I also explained to FT, in so many ways that those capital requirements, besides representing an important driver of inequality, were one of the most economic distortive factors ever, and completely impeded the banks to perform efficiently their role of allocating economic resources.

If for instance a German bank, lent to Greece, rated as one of “The semi-Infallible” Greece was just a couple of years ago then, according to Basel II, if it could make a 1 percent net after perceived risk and cost margin, then it could aspire to earn 62.5 percent on its equity. But, if instead it lent to a small German or Greek unrated business and earn the same net margin, then it was only allowed to achieve 12.5 percent return on equity. Does this nonsense makes sense to FT? I cannot believe so. Yet, what am I to think?

You can find my soon 900 letters to The Financial Times on this issue, for over soon a decade now, here:

And though I have received many letters from some of FT’s journalists and experts agreeing on my points, though I admit a couple of them have been conspicuously silent and never responded to one of my comments on their pieces, my arguments have not been allowed to fully surface. 

Now, little by little my arguments are gaining traction, although yet in an incomplete way, among others by the recent comments made by Andrew Haldane, and to which FT’s Editor refers in “Haldane occupies a strange platform”, October 31. 

I argue that if the Financial Times had given support to my arguments earlier, a lot of sufferings, and a lot of travelling on the mistaken road of Basel III, could have been avoided. 

And so I must wonder if not the Financial Times’ motto “Without fear and without favour” for more transparency should add: “Applicable to those who do suck up to us and do not hurt our egos”. 

Am I a bit upset? Yes, why not? You would be too! It is hard enough to fight the Regulatory Establishment on your own for you to also be encumbered by the uncooperativeness of a powerful media which wants to favour other arguments and other arguers. 

But, I was given a voice in the Financial Times? Yes! 15 letters published from 2003 until 2006 and only one thereafter. Whose ego did I trample on?

Then of course Martin Wolf generously permitted me in his Economist’s Forum in October 2009 to publish my “Free us from imprudent risk-aversion”. 

Do I have sufficient credentials to aspire having more voice? I truly believe so but you can judge yourself. 

That said, now and again I have found voice in other media… like for instance this letter in the Washington Post. 

But, since I am sure that I am correct in my arguments, and these will win the day, sooner or later, the Financial Times will have to acknowledge their mistake. I do not believe they will even try to hide the fact that these were my arguments… or them being capable of such un-ethical behavior as endorsing these to someone else they want to favour.