Why and how are medium and small businesses, entrepreneurs and start ups, and normal citizens, ruled to be a systemic danger to the financial system?

Sir, Gina Chon reports that some senators are questioning how the Financial Stability Oversight Council might rule some non-bank financial institutions to represent a systemic risk to the financial system; and which among other could lead these to face higher capital requirements, “Senators warn over non-banks regulation”, November 29.

And again I must ask, for the umpteenth time, why and how are the medium and small businesses, entrepreneurs and start ups, and normal citizens, ruled to be a systemic danger to the financial system?

And I ask this because all higher capital requirements demanded from any financial institutions, when subjected to risk-weighing, naturally impacts the most those against which businesses the most capital is required, and which is of course those who have a high risk-weight.

Others, like the sovereign and the AAAristocracy, are often even favorably impacted by these higher capital rulings since, as the song goes, when capital gets to be scarce the low risk weighted get going.

Chon comments that “the senator’s criticisms could delay the council’s assessment of asset managers, giving them more time to lobby for the regulation to be watered down”. How sad no senator, in the home of the brave, seems interested in watering down the completely unwarranted and odious discrimination against those though correctly perceived as risky, have precisely because of that, never ever caused a major financial crisis.

What we least need is a non-transparent “Financial Stability Oversight Council”.

Sir Sebastian Mallaby´s “How to fsoc it to the hedge funds” July 16, clearly indicates that with the Financial Stability Oversight Council, a brand new source of systemic risk has been introduced, much the same when regulators empowered the credit rating agencies with a very important role in setting the capital requirements for banks.

In order to increase our chances to escape from new major disasters, we must avoid the markets having to entertain additional useless speculation about what some holed up “systemic risk experts” might be thinking. In this respect I would suggest that the FSOC is required to open a blog; and place a first post saying “We have the following list of systemically risky institutions” and then allow for the public to comment on whatever they say.

Of course, some good whistleblower protection programs for employees of possible systemically risky institutions might also be useful.