Jean-Claude Juncker, while bank regulatory risk aversion remains, Europe will stall and fall, no matter what you do

Sir, Sarah Gordon writes: “There is no doubt that a boost to investment in Europe is still needed. Its recovery since the financial crisis has been the weakest in 30 years, and most of the region’s economies are still underperforming their potential. The Juncker plan was an ambitious and imaginative attempt. But as for many such grands projets, implementation has lagged behind conception” “Juncker’s European investment plan: rhetoric vs reality” March 29.

But in parallel to that, the regulators, with their risk weighted capital requirements for banks, distorted the allocation of credit to the real economy. 

By doubling down on risk perceptions they de facto decreed that those perceived as risky, like SMEs, were less worthy of bank credit than those perceived as safe, like sovereigns.

And Jean-Claude Juncker, not wanting to criticize technocrat colleagues preferred to launch this bureaucrats directed investment plan. 

Forget it! While current bank regulatory risk aversion remains, Europe has no way to go but to stall and fall.

Here my pending questions that are not answered by the regulators. 

@PerKurowski

Why should companies be banks and banks not? The real challenge for the European Commission

Sir, I refer to Sarah Gordon’s “Juncker’s plan needs companies to open up their healthy coffers” December 30.

And I ask why should companies turn into banks? Why should companies finance “Europe’s younger and smaller firms which, research suggests, create a disproportionate number of new net jobs”.

What’s wrong with banks financing these? And as banks would were it not for the credit-risk-weighted capital requirements for banks, which create such real hurdles for banks when financing what is perceived as “risky”… and this even though those “risky” could signify the safest way out of the crisis.

Who is going to stop the frankly idiotic bank regulations coming out of the Basel Committee? That would be the real challenge for the European Commission. 

Silly and sissy regulatory risk-aversion is not compatible with a grown-up response to the Eurozone’s problem.

Sir, is a massive ECB-QE liquidity injection, by means of buying safe “sovereign debt purchases”; while keeping bank regulations which forces banks to stay away from assets perceived as risky, like lending to small businesses and entrepreneurs; all in the hope that infrastructure investments and other “safe” goodies will pull the Eurozone out of stagnation... a "grown-up response"?

Wolfgang Münchau seems to think so in his “The Juncker fund will not revive the Eurozone” December 1.

I certainly do not think that such silly and sissy regulatory risk-aversion is compatible with a “grown-up response”, nor with the Eurozone’s revived growth.

Why does Wolfgang Münchau keep mum on the minimum minimorum Europe needs to do to lift itself out of its mess?

Sir, again, last June 26 was the 10th anniversary of the G10 approving the absolutely senseless Basel II bank regulations. 

And here we are, and still another one of your star columnists, Wolfgang Münchau writes about how jolting Europe back to life… and does not even mention the role that bank capital requirements which discriminate against what is already discriminated against, namely what is perceived as risky, can have in paralyzing an economy, “An investment surge would jolt Europe back to life” June 30.

Münchau holds that Mr. Claude Juncker, the next president of the European Commission, “will need to create a consensus in favour of higher public investment across the EU, and he will need to find an ingenious way to finance it”.

I would wish instead for Mr. Juncker first to concentrate on enlightening the EU, that higher capital requirements for banks when lending to SMEs than when lending to the infallible sovereigns, to the housing sector or to members of the new AAAristocracy, make absolutely no sense. First because that blocks access to bank credit for those who are usually most in need of bank credit, and secondly they simply do not make sense from a pure bank stability perspective, as never ever have what is ex ante perceived as risky caused a major bank crisis.

For those who access bank credit, Basel II became the equivalent of a Kristallnacht. It launched a pogrom against the risky, for no good reason, and named the sovereign and the AAAristocracy a new Master Class, again for no good reason.

Those responsible for Basel II should have been made yesterday’s men years ago

Sir, in “The return of yesterday´s men”, February 5, you hold that Jean-Claude Juncker, Martin Schulz and Guy Verhofstadt “will not strike many as representing a genuine choice… for the presidency of the European Commission”. And that is so because these gentlemen represent “a familiar orthodoxy of elite driven integration….that sounds tired and irrelevant to millions of citizens whose lives have been turned upside down by [among other] the collapse of banks”.

Yes, you are most probably correct in your assessment, but why have you not gone out and criticized in a similar way the members of the Basel Committee or of the Financial Stability Board? They with their utterly failed Basel II have had a much more direct role in causing the collapse of banks.

If there had been any type of accountability all these experts would since long be “yesterday’s men”. Instead, they were put in charge of Basel III and, in some cases, like with Mario Draghi, even promoted.