So where were those regulators who knew that “banks had wafer-thin capital levels and were accidents waiting to happen”? In some La-La Land!

Sir, Hans Hoogervorst, the chair of the International Accounting Standards Board, while discussing new accounting standard, IFRS 9, writes:“The truth is that HBOS met bank regulators’ capital requirements, and its financial statements clearly showed that its balance sheet was supported by no more than 3.3 per cent of equity. For investors who cared to look, the IFRS standards did a quite decent job of making crystal clear that many banks had wafer-thin capital levels and were accidents waiting to happen”, “Do not blame accounting rules for the financial crisis”, October 4.

Hoogervorst adds, “with markets swimming in debt and overpriced assets… we need management to own up to the facts — and auditors, regulators and investors to be vigilant.”

So where were the regulators who knew that “banks had wafer-thin capital levels and were accidents waiting to happen”? Clearly not where they should have been! Because regulators who, with Basel II in 2004, felt it was ok to allow a bank to leverage a mindboggling 62.5 times only because a human fallible credit rating agency awarded an asset an AAA to AA rating, must clearly have be away sleeping in some La-La-Land.

And since the regulators still do not understand how their risk weighted capital requirements for banks distorts the allocation of bank credit; first by pushing for especially large exposures against especially little capital to what can be especially dangerous to our bank system, because it is perceived as safe; and then by hindering that risk-taking, like when financing “risky” entrepreneurs, that the economy needs to keep on growing sustainable, which, at the end of the day, is what most matters to keep our bank system safe… they are still in La-La-Land or shamefully still sleeping on the job, or, even more shamefully, doing all they can to cover up their mistake, even if that means causing a new and even worse crisis.

But where was FT during these ten years? You tell me Sir; as for me I at least wrote you and your experts a couple of thousand letters on the issue. You can find these on my blog TeaWithFT searching the label “subprime banking regulations”

@PerKurowski

Sadly, banks must now to take on board rules that were not adjusted to what caused the crisis

Sir, Martin Arnold, your Banking Editor writes: “In the coming year, much of the alphabet soup of post-crisis financial regulation will be completed — including Basel III, IFRS 9 and Mifid II — giving the industry the most clarity for almost a decade on the rule book it must follow.” “Lenders take on board rules of a post-crisis world” December 30.

We are soon three decades after regulators in 1988 with Basel I, concocted risk weighted capital requirements for banks, and 13 years after they put these on steroids with Basel II’s risk weights of 0% for sovereigns, 20% for AAA rated, and 35% for residential mortgages. That caused irresistible temptations for banks to create excessive exposures to these “safe” assets, which resulted in the 2007/08 crisis. And yet there is almost no discussion about that monstrous regulatory mistake.

So the risk weighting is still part of the regulations; and therefore the 0% risk weighted bank exposures to sovereings keeps growing and growing; as well as is the disortion of bank credit in favor of the “safer” present and against the “riskier” future. 

In this respect if I were to title something of this sort at this moment it would be more in line of “Lenders take on board rules that have not been adjusted to the crisis and therefore guarantee a world with even larger bank crises”

The irresponsibility and lack of transparency evidenced by the members of the Basel Committee is amazing. The lack willingness of media, like the Financial Times, to pose some simple questions to these regulators, is just as incomprehensible. 

When the next bank crisis, or the next excessive exposure to something perceived as very safe blows up in our face, how will your bank editor then explain his silence on this?

PS. I could not find the link to Martin Arnold's piece.

@PerKurowski

Sadly, banks must now to take on board rules that were not adjusted to what caused the crisis.

Sir, Martin Arnold, your Banking Editor writes: “In the coming year, much of the alphabet soup of post-crisis financial regulation will be completed — including Basel III, IFRS 9 and Mifid II — giving the industry the most clarity for almost a decade on the rule book it must follow.” “Lenders take on board rules of a post-crisis world” December 30.

We are soon three decades after regulators in 1988 with Basel I, concocted risk weighted capital requirements for banks, and 13 years after they put these on steroids with Basel II’s risk weights of 0% for sovereigns, 20% for AAA rated, and 35% for residential mortgages. That caused irresistible temptations for banks to create excessive exposures to these “safe” assets, which resulted in the 2007/08 crisis. And yet there is almost no discussion about that monstrous regulatory mistake.

So the risk weighting is still part of the regulations; and therefore the 0% risk weighted bank exposures to sovereings keeps growing and growing; as well as is the disortion of bank credit in favor of the “safer” present and against the “riskier” future. 

In this respect if I were to title something of this sort at this moment it would be more in line of “Lenders take on board rules that have not been adjusted to the crisis and therefore guarantee a world with even larger bank crises”

The irresponsibility and lack of transparency evidenced by the members of the Basel Committee is amazing. The lack willingness of media, like the Financial Times, to pose some simple questions to these regulators, is just as incomprehensible. 

When the next bank crisis, or the next excessive exposure to something perceived as very safe blows up in our face, how will your bank editor then explain his silence on this?

@PerKurowski