Damages by Euribor rigging are peanuts compared to bank regulators’ rigging of credit allocation to the real economy

Sir I refer to Rochelle Toplensky and Martin Arnold write on “Brussels will hit HSBC, JPMorgan and Crédit Agricole today with multimillion-euro fines for rigging the Euribor interest rate benchmark” “Three banks fined over rate-rigging” December 7.

For years I have argued that if banks are to be fined, they should pay those fines in shares, since having their capital diminished by forcing them to pay cash, is pure masochism as that will affect their capacity to give credit; and since we also want banks to hold more capital.

But also in this case let me note that whatever damages these banks could have caused with their rigging of Euribor, these are peanuts when compared to what bank regulators did by rigging, with their risk weighted capital requirements, the allocation of credit to the real economy with their risk weighted capital requirements for banks.

If not fined, these regulators should at least be publicly shamed and banned forever from regulating banks… or anything else.

@PerKurowski

​​FT, without fear and favour, take a long hard look at the incentives regulators dangle before banks

Sir, while discussing some possibly very shady FX operations, you correctly suggest that “the whole banking industry should take a long hard look at the incentives it dangles before traders” “HSBC case is another blow for trust in banks”, July 22.

But, why do you so steadfastly refuse to take a long hard look at the incentives the regulators dangle before banks?

By allowing banks to hold less capital against what is perceived decreed or concocted as safe than against what is perceived risky, banks can leverage more their equity, and the support they receive from the society, with the “safe” than with the “risky”.

And that incentive means banks can expect higher risk adjusted returns on what’s “safe” than on what’s “risky.

And so that incentive means banks will lend too easily to what’s safe and too little to what’s “risky”

And so because of that incentive the “safe-havens”, like lending to the sovereigns, the AAArisktocracy and financing houses will, sooner or later, become overpopulated, and therefore very risky.

And so because of that incentive the “risky-bays”, like SMEs and entrepreneurs, will be less explored and, in order to compensate for the discrimination, will have to pay more for credit, which makes these riskier yet.

And so because of that incentive, today billions in bank credit will be awarded in too favorable terms to those who do not deserve it, and thousands of SMEs and entrepreneurs will see their applications refused.

And so because of that incentive the real economy is mostly fed with carbs that makes it obese, and does not receive enough proteins to remain muscular.

Sir, what incentives do someone dangle before FT to have FT being so mum about these so horrible incentives that so distort the allocation of bank credit to the real economy… and all for nothing!

@PerKurowski ©

For access to confidential private Swiss banks accounts, why not “wealth asylum”, something like political asylum?

Sir, John Gapper writes “there are decent reasons apart from tax evasion, or even legal tax avoidance, for the wealthy to put money in Swiss banks”, yet he with reason asks “the rich”, whether that is “any way to behave”, since doing so they will “resemble money launderers”, “Private banks must be more than laundries” February 12.

But Sir, why should a rich have to give up his private Swiss bank account if his reasons are decent?

It seems that what could be needed is something like a Swiss government office where a person can go and request “wealth asylum”. He would there of course have to present reasonable evidence of his source of wealth not being illegal.

If granted, such asylum would offer special confidentiality rights, which would be guaranteed for as long as the Swiss government does not receive substantial proof that shows the application contained major falsehoods.

If Robin Hood could hide in Sherwood Forest why can’t wealthy hide in private banks? I mean let us be frank; there are many bad Sheriffs of Nottingham out there.

If persons are allowed to carry guns against bandits, why not, in these Piketty days, can the wealthy carry private Swiss bank accounts against some overly greedy government bureaucrats?

And sometimes even if its not all "legal": If a poor North Korean managed to evade paying taxes and escape with some money, should not his capital have right to anonymous asylum?

But why on earth should you think about putting the burden to decide about what’s decent and what’s is not, on a small bank clerk who might rarely been out of his country?

PS. Am I wealthy? No! But just like for instance a shoe-artisan in Milan knows it, I know that the higher the number of wealthy around me, the more likely I am to be better off… and so, sometimes, though not too frequently, I also have to think a bit about how to keep the wealthy wealthy. If you have to be a servant, then most often, though not always, you are better served having to serve a wealthy master.

I am very suspicious of those who seem wanting to promote shared poverty… because quite often it sounds like their populist business plan for trying to become very wealthy themselves. And I do oppose the redistribution profiteers

PS. But then, now and again, I get hit by the thought: "If the wealthy could not safeguard their wealth in other countries, then perhaps they would make a stronger stance and defend their wealth more in their own country". And that sometimes could be what is really most needed.

By George I think FT’s got it: “A ship in harbor is safe, but that is not what ships are for” John A Shedd, 1850-1926.

Sir you write: “politicians… need banks to lend money and support economic growth (rather than inventing esoteric products to boost their bonuses). A bank that never takes any chances is not doing its job”, “Complicated banks face complex rules” August 8.

And so, are you finally waking up to the fact that banks have other purposes than not just going belly up and costing taxpayers some money? About time, why did it take you so long?

The regulators though still seem to be sleeping on it, as they insist with their risk-weighted capital requirements for banks… which are based exclusively on credit risks already cleared for by other means, and not having one iota to do with any lending money or economic growth purpose... much the contrary as these requirements profoundly distorts the allocation of bank credit.

How long have our economies got left with our banks having been injected with the venom of cowardice?

Sir, Martin Arnold and Tom Braithwaite report “HSBC’s warns of risk-aversion” August 5.

Of course you know very well that I hold that excessive risk aversion is what most threatens our economies but, to read of banker like HSBC’s Douglas Flint expressing concerns about “a growing danger of disproportionate risk aversion creeping into decision making of our business”, without mentioning the largest source of risk aversion for banks, the risk weighted capital requirements for banks, is maddening.

The disproportionate risk aversion of bank regulators, have banks now earning much higher expected risk adjusted returns on their equity on assets perceived as safe, which they can leverage much more, than on assets perceived as risky. And that has injected into our banks the venom of cowardice…

How long our economies can be sustained without medium and small businesses, entrepreneurs or start-ups having fair access to bank credit is hard to say, but one thing is really sure, if that risk aversion persists, our economies will go down down down.

Douglas Flint, as a banker might very well be doing his fair share of dressing up what is risky as more safe but, as a citizen, as a father, possibly even as a grandfather, and as someone who should understand the meaning of risk taking, he should be ashamed of himself. What is in it for our descendants if our generation refuses to take its proportionate and necessary share of risks required for moving the world forward?

And that, of course, goes also for many of you in FT too.

The awful truth is that risk weighted capital requirements for banks, are robbing our young of their horizons.

We need to see the hiding-behind-regulatory-risk-weighting index of the banks

Sir Patrick Jenkins and Daniel Schäfer at the end of their “Banks in cash calls to meet Basel III” state the caveat with respect of the numbers shown that “Regulators [will] either raise risk-weightings and/or give more emphasis to nominal balance sheets.” Indeed, but it can also be, like the current crisis has clearly evidenced, that the risk-weights could also simply turn out to be very wrong.

And that is why I consider the illustration that shows Basel III core tier one capital ratios of 12 large banks to be quite opaque. As a minimum, next to each Basel III ratio they should have given us each banks capital to nominal balance sheet ratio.

That way, by dividing the first ratio by the second (or the other way round) we can build an index which allows us to identify how each bank hides behind risk-weights, whether these are calculated by themselves or by the regulators.

FT, why do you go so much softer on regulators than on bankers?

JP Morgan Chase’s recent losses, Barclays’ manipulation of Libor, RBS’s IT failures and the money laundering assistance provided by HSBC, though all absolutely unpardonable, some most probably criminal, amount, in terms of real damages to the economy, to not more than some pick-pocketing, when compared to the harm that the bank regulations did, with their capital requirements for banks based on perceived risks already cleared for. 

All of which makes me wonder again, for the umpteenth time, why the Financial Times treats the bureaucrats of financial regulations with kid gloves when compared to how they treat the bad bad bankers, as for instance in Patrick Jenkins’ and Brooke Master’s “London’s precarious position” July 30, 2012.

But who speaks out for the unrated small businesses and entrepreneurs?

Sir Patrick Jenkins, November 8, reports that HSBC considers “Basel III a severe threat to world trade” because the risk-weight for trade finance, increasing from 20% to 100%, would “unjustly” signify having to hold 5 times as much capital against trade finance as is currently required.

HSBC is absolutely right, any regulatory discrimination on capital requirements for banks, given that the markets already price in the risk premiums by means of higher interest rates… is arbitrary, regressive and odiously unjust. But, what about all those small businesses and entrepreneurs who have actually have had to carry a risk-weight of 100% for years now and have therefore been similarly discriminated against? Who speaks out for them? Are they going to be left out in the cold just because lending to them does not belong to the typical bank operations of one of the too-big-to-fail bank mammoths?