Long term growth, development, in India and elsewhere, requires getting rid of Basel's regulatory risk aversion.

Sir, Eswar Prasad writes: “the real question for policymakers in India is not about how they can boost growth temporarily but how to create the environment to elicit private investment. Without that, durable longterm expansion will remain a mirage”, “Long-term growth in India depends on serious reform” October 17.

It is now ten years since at the High-level Dialogue on Financing for Developing at the United Nations, I presented a document titled: “Are the Basel bank regulations good for development?”

Its first paragraph states: “It is very sad when a developed nation decides making risk-adverseness the primary goal of their banking system and places itself voluntarily on a downward slope, since risk taking is an integral part of its economic vitality, but it is a real tragedy when developing countries copycats that and falls into the trap of calling it quits.”

And from what I have seen, in terms of Basel’s banking regulations, India is proceeding as if just as papist as the Pope.

The risk weighted capital requirements; those that dangerously distort the allocation of bank credit in favour of what is perceived decreed or concocted as safe, and against what is perceived as risky, like SMEs and entrepreneurs, are still going strong there.

That is the danger of empowering technocrats that are more interested in showing off to colleagues what’s fashionable in Basel than wearing what they should wear back home.

PS. The document referred to was also reproduced in India, in October 2008, in The Icfai University Journal of Banking Law Vol. VI No.4

@PerKurowski

Greece cannot be rebuilt without the assistance of “The Risky” Greeks.

Sir you write “Only the Greeks can rebuild Greece”, November 9. I absolutely agree with that, as well with your conclusion that their politicians need “to sell to the Greek people the idea of a future lived within their means, and stop pretending to defend them against heartless foreigners.

But, if only Greeks can rebuild Greece that must also include to put a halt on those nonsensical banks regulations which through the risk-weighted capital requirements, discriminate so much the access to bank credit in favor of “The Infallible” of today, if there is such a thing, and thereby discriminates against “The Risky”, small businesses and entrepreneurs, those that represent so many of the possible infallible of tomorrow.

You seem to think that a recapitalization of Greek banks in terms of a Basel III would suffice to reignite the Greek economy. Forget it! For that to happen, as a minimum, the distortions produced by those regulations which impede the banks from performing with any sort of efficiency their role in allocating economic resources, need to be eliminated.

In other words “The Risky” Greek must be allowed to help rebuilding Greece. And by the way, if you do not want to become just like Greece, that goes for your homeland too.

When regulatory madness is just that

Sir, Gillian Tett writes about “When political madness works” October 13, and in it refers to Lord Owen’s neurology paper “Hubris syndrome”, 2009. She also refers to Nassir Ghaemi’s “A first rate madness” which holds that some imbalances like depression, bipolar syndrome and hyperactive manias” could help leaders to better manage crisis. 

Hold it there! Before these imbalances become prerequisites of leadership let me state the following: 

Independently of what imbalances they suffered from, when bank regulators engaged in one of the greatest hubris exercises ever, that of believing themselves to be fully equipped to act as risk managers for the world, they utterly, and totally, failed… and their madness has not served them or us later either. 

Their regulatory discrimination in favor of The Infallible and against The Risky is killing our economies, and there is no way Gillian Tett is going to convince me they are doing us some Winston Churchill good.

And by the way... what about the hubris and or madness of some journalists? Is it good or bad?