Compared to the Basel Committee’s statism and dangerous risk-aversion, Trump seems like a minor threat

Sir, John Kay discussing the election of Trump writes: “The post-cold war settlement that Francis Fukuyama characterised as the end of history — the combination of lightly regulated capitalism and liberal democracy — carried the seeds of its own destruction. The hubris that legitimized greed and proclaimed the primacy of shareholder value led to the global financial crisis of 2008 and, more generally, undermined the legitimacy of capitalist organization. “At last, the post-crisis political reckoning” November 12.

No! I hold instead that because of the Basel Accord of 1988, one year before the fall of the Berlin Wall, and which for the purpose of the capital requirements for banks set the risk weight for the sovereign at 0%, and for us We the People at 100%; the world has nothing to do with “lightly regulated capitalism and liberal democracy”; and all to do with “hubris [and ideology] that legitimized the greed and proclaimed the primacy [not of] shareholders" but of government bureaucrats, of the AAArisktocracy, and in this case of some naturally willing partners, the banks.

If the financial crisis of 2008 should have undermined anything, that is the statism and the risk aversion that resulted from allowing biased and inept technocrats to regulate.

We now live in a world in which the financing of basements, where unemployed youth can live with parents, is much favored over the financing of SMEs and entrepreneurs, those who could better generate the future jobs our young need to also afford becoming parents.

Sir, I fully agree that the election of Donald Trump as president of the USA, because of many of his utterances during the elections, raises some very serious concerns. That said I find it very hard to believe that he will be allowed to impact the world so negatively during the next four year, as the bank regulators have done during now soon three decades.

Risk-taking is the oxygen of any development. If you hinder it, the economy is bound to stall and fall.

God make us daring!

@PerKurowski

How can expectations be high when you discriminate against the future, on account of it being riskier than the past?

Sir, John Kay writes: “It is not because interest rates are too high that eurozone consumption is sluggish but rather because expectations are so low. Fiscal austerity and the aftermath of the global crisis have dimmed the employment prospects of a generation of young Europeans. Low interest rates have as intended pushed up the prices of long-dated bonds and houses” “The twisted logic of paying for the privilege of lending”, September 10.

Frankly, how can expectations not be low, when we have regulators that order banks to hold more capital against what’s perceived as risky, the future, a job to be created; than against what is perceived as safe, the past, a house that has already been built?

And Kay writes: “There are obvious requirements for investment in the eurozone — to provide power through cleaner energy plants, to improve roads and relieve overcrowding on trains, to build houses, to accommodate tens of thousands of recent refugees and above all to fund the new businesses that will promote innovation on the continent.”

Yes, but, if so, why do we not have capital requirements for banks based on those purposes?

Mr. Kay, I tell you, it is not “dysfunctional capital markets, rather than any excessively high interest rates, that are behind an investment shortfall across Europe”. It is totally dysfunctional bank regulations.

Mr. Kay also reminds us of the “aphorism that people will lend you money so long as you can prove you do not need it”. But Sir, that is what Mark Twain told us long ago: “The banker lend us the umbrella when the sun shines and wants it back when it looks like it could rain”; and which is precisely why the Basel Committees’ risk weighted capital requirements for banks don’t make sense.

Mr. John Kay, wake up!... and you too Sir.

@PerKurowski ©

“With a basic income, the numbers just do not add up” Do not add up for whom, for the redistribution profiteers?

Sir, John Kay writes: “With a basic income, the numbers just do not add up” June 1, and the first question that pops into my mind is, does not add up for whom?

For instance if in my country Venezuela, all net oil revenues were shared out using a “variable” Universal Basic Income scheme, it would definitely not add up to Maduro and friends, but it would sure add up a lot to most other citizens, especially to those poor who have only received a very small fraction of what should have been their per capita share of those revenues.

If we go the Universal Basic Income route, then we can also better separate the redistribution function from all government functions, bringing heightened transparency, and which clearly would add up to a chance for better governments.

I favor paying that Universal Basic Income to all citizens, with no question asked, as a Societal Dividend. It should be a citizen-to-citizen affair so that there is no need to thank any bureaucrat or politician for special favors.

And a UBI could signify a decent and worthy partial solution to that future structural life term unemployment of millions that we can already begin to detect.

How much should the amount be? Let each country explore what it can, and lets take it from there. There are better times and there are worse times; and you sure do not want to de-capitalize that society paying you dividends, much less put it in debt in order for those now to collect income from the future generations.

And let us not forget that the Universal Basic Income is in much re-injected into the real economy, which could help it to grow and generate jobs.  

And you could fund Universal Basic Income from different sources in ways that help to solve problems… like with carbon taxes, so as to align the incentives of the fight against climate change with the fight against inequality.

Kay ends writing: “Social welfare systems everywhere make use of both types of information — contingent and income-related — to balance cost and effectiveness. That is why they are, inevitably, complex” The truth is they are much more complex than need be, precisely because that’s the business of the redistribution profiteers.

@PerKurowski ©

John Kay, how can you justify the risk weight of the sovereign being zero percent? Are you a runaway statist?

Sir, John Kay holds “When real interest rates on 50-year maturities for sovereign bonds are roughly zero, there is little reason to worry about the fresh debt this imposes on our children. I am sure they would rather have houses to live in and be able to cross bridges that will outlive their parents.” “Smoke, mirrors and helicopter money” May 17.

Of course the children would, but only if they had the jobs that give them the income needed to pay for the mortgages and utilities of those houses, and only if those bridges took them somewhere they wanted or needed to go to.

And besides that real interest rates at roughly zero, should make the children think about from where is that income to pay for the parents pensions going to come, and so that they won’t have to help their loved parents survive.

Again, for the umpteenth time, if we as a society are not willing to take the risks of opening up new roads for our economy, our children’s future and ours is blocked.

And that is why I fight against the risk weighted capital requirements for banks that de the facto block these from financing the riskier future and keep them solely refinancing the for the time being safer past.

And Kay refers to “the belief that central banks can never be insolvent because they can always print money and that bank notes are not exchangeable for anything but another bank note”, but accepts that “if the central bank prints enough of them they lose their value.”

And so again I ask: If so, how can you then justify regulators setting the risk weight for so many sovereigns at zero percent? That helps the real interest rates on sovereign bonds to be low! That is a regulatory subsidy for government debt! A subsidy paid by all the "risky" that because of that are denied fair access to bank credit.

Also assigning the government a risk weight that is lower than the one given to the citizens, those who give the government its final strength, signifies, de facto, a belief that government bureaucrats know better what to do with bank credit than citizens. That is pure and unabridged statism!

@PerKurowski ©

Perceived credit risk is all about expected losses, while bank capital should be a buffer against unexpected losses.

Sir, John Kay writes that Warren Buffet, “In a revealing moment, when asked about the absence of conventional due diligence in his acquisition process; acknowledged that Berkshire had made bad acquisitions, but never one that could have been avoided by the kind of information that due diligence might have revealed.” “The Buffett model is widely worshipped but little copied” May 4.

Translate the above into bank regulations and it would mean: Banks could always lose but not because of the information a credit analysis might have revealed… much more dangerous than the expected, is the unexpected.

And that Sir is one of the many reasons why I believe current regulators are worse than fools. They defined the capital banks should be required to have, in order to confront unexpected losses, based on expected perceived credit risks. 

Please don’t tell me you think that is smart. In fact, the safer something is perceived, the greater is its potential to deliver huge unexpected losses. In fact, from this perspective, the safer something is perceived, the larger should the capital requirements for a bank be.

By the way let me make it clear that I am arguing this only to make a point, and I am not now suggesting we should distort the allocation of bank credit to the real economy in the other direction, favoring the risky.

Sir, if we are to distort, let us at least, as a minimum minimorum, do so with a purpose. For instance make the capital requirements for banks based on job creation and earth sustainability ratings.

PS. Here are plenty of reasons for why I believe the bank regulators in the Basel Committee are complete idiots… or something worse 

@PerKurowski ©

The Basel risk-weight for grand government projects is 0%; for an SME’s incremental development 100%

Sir, John Kay writes “A high proportion of the mooted benefits of grand projects could be obtained by incremental development at a fraction of the estimated cost of the world-beating schemes” “Grand projects are worthless if they do not work” April 27.

Yes but the Basel Committee, in order to make banks safer, decided to use risk weighted capita requirements. And when determining these they set the risk weight for “grand projects” carried out by government to zero percent, while that of any “incremental development” carried out by an SME was set to be 100 percent. So guess who has easier access to bank credit?

Considering FT’s total silence on this subject most, or perhaps all in FT, seem to think this is a smart way of making banks safer. I don’t. Since it impedes the best allocation of bank credit to the real economy, I think it is utterly stupid and unsafe, even for the banks.

@PerKurowski ©

Among all that regulatory complexity, when are regulators to tell us what they think the purpose of banks is?

Sir, John Kay writes on banks: “Complexity is the enemy of stability… [it is] compounded by the regulatory complexity that follows from attempts to monitor behaviour in impossible detail… legislators cannot hope to have more than a basic knowledge of the rules they promulgate or the workings of the regulatory institutions they have created.” “Complexity, not size, is the real danger in banking” April 13.

That is a fair description of what is happening and we can only lament the incredible amount of new complications the regulators are spitting out with such gusto.

What astonishes me though is that legislators do not have the wherewithal to at least answer the question: “What do you believe is the purpose of banks?”

Sir, again, I am convinced that with their credit-risk weighted capital requirements, the regulators demostrate they do not give one iota about how credit is allocated to the real economy. And to do that well, with reasoned audacity, as I see it, is the most important function of banks.

PS. To allocate the most of bank credit has nothing to do with alocating credit in the best way. In fact often the best credit, is that not given. 

@PerKurowski ©

Mervyn King, for bank regulators to use the expected, as a direct proxy for the unexpected was, and is, radically dumb

Sir, John Plender, March 3, reviewed Mervyn King’s book “The End of Alchemy: Money, Banking and the Future of the Global Economy" And in doing so Plender writes that King argues that in a world of what economists now call “radical uncertainty”, it is not always possible to compute the expected utility of any action. There is simply no way of identifying the probabilities of all future events and no set of economist’s equations that describe people’s attempts to cope with that uncertainty.”

And according to Plender, King proposes a “central bankerly pawnbroking” facility to supply “liquidity, or emergency money, within a framework that eliminates the incentive for bank runs… That would displace what King regards as a flawed risk-weighted capital regime ill-suited to addressing radical uncertainty.”

And John Kay ends his discussion of King’s book with: “There is a world of difference between low-probability events drawn from the tail of a known statistical distribution and extreme events that happen but had not previously been imagined”, “The enduring certainty of radical uncertainty”, April 6.

Hold it there has all that really anything to do with the current risk weighted capital requirements for banks? Absolutely not!

What happened was that since the regulators did not know how to estimate the unexpected losses, those that bank capital is foremost to safeguard agains, they went out and used the expected credit risks. And since those risk were already cleared for by banks, with interest rates and the size of exposures, credit risks, when also used to set capital requirements, were given too much consideration.

And, for the umpteenth time: any risk, even if perfectly perceived leads to wrong actions if excessively considered.

And Plender also wrote about King arguing: “Banks satisfied investors’ desperate search for income by creating increasingly complex and risky financial products based chiefly on mortgage debt. Bank balance sheets grew explosively as property lending ballooned. At the same time, the capital of banks shrank as they took on more risk.

Again that is not really so! The increasingly complex and risky financial products chosen were entirely based on that these could be argued to be very safe, and therefore require banks to hold less capital. For instance mortgage debt would never ever have exploded as it did, if instead of receiving a 35 percent risk weight, it had the 100 percent risk weight assigned to “risky” SMEs and entrepreneurs.

And Plender also wrote about King arguing: “They were trapped by what game theorists call a prisoner’s dilemma. If they retreated from riskier lending and trading strategies while reducing their borrowings, a decline in short-term profits relative to their competitors would have caused staff to defect in pursuit of higher bonuses elsewhere and prompted calls for the chief executive’s head.”

Those “short tem profits” are not some absolute profits, but returns on equity, and so banks, searching for the highest profits, naturally favored those exposures that provided the highest expected risk adjusted returns on equity, in other words those that could be most leveraged.

Sir, I have no respect for a regulator like Mervyn King. He and all his colleagues decided to regulate banks without defining their purpose. Had they done so they would have known, that the most important social purpose of banks is to allocate credit efficiently to the real economy.

Now our banks do not finance the riskier future they just refinance the, for the short time being, safer past.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926 

I can understand journalists covering the reputation of old friends… but is that really their role and duty? “Without fear and without favor”… Hah!

@PerKurowski ©

If regulators insist on that any information gathered by banks must be doubly considered, that would be real dangerous.

Sir, Martin Wolf writes: “Finance is an information business. Indeed it already spends a higher share of its revenues on information technology than any other. It seems ripe for disruption by information technologies. Consider its three essential functions: payment; intermediation between savings and investment; and insurance. All these activities are information-intensive.” “Good news — fintech could disrupt finance” March 9.

Banks already perceived information about credit risks, and cleared for it with interest rates and the amounts of their exposures... and they were not doing that bad when it came to identify “the risky”, where they sometimes really failed, badly, was when they identified some as very safe.

But then came the regulators and told the banks they also had to consider the same perceived risks in the capital. And so banks did doubly stay away from the risky, and doubly fall into the traps tended by the false safes.

And so if all that information is going to be of value for the banks and for us, be sure to keep the regulators away from it.

Martin Wolf also quotes John Kay on that “parts of the financial sector today . . . demonstrate the lowest ethical standards of any legal industry”.

Not so. Compared to the ethical standards of regulators who abusing their powers distort the allocation of bank credit to the real economy; and by discriminating against the opportunities for fair access to bank credit of “The Risky” increase inequalities, one could argue that bankers are saints.

@PerKurowski ©

The limits to productivity growth are also defined by the willingness to take risks.

Sir, John Kay writes “The limits to productivity growth are set only by the limits to human inventiveness” “Prepare for the dawn of a second special century” March 2.

Wrong! Wrong! Wrong! These are also set by the willingness to pursue that human inventiveness no matter how risky it is.

And that is what our society has much stopped to do, primarily because our regulators gave our banks incentives to embrace what is perceived as safe and stay away from what is perceived as risky; and this even when (supposedly) according to Mark Twain “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

Risktaking is the oxygen of development and a must for muscular and sustainable economic growth.

As is our banks do not finance any longer the riskier future, they just refinance the safer past.

@PerKurowski ©

But why does FT’s John Kay not find it wrong when regulators restrict the competition for access to bank credit?

Sir, John Kay writes: “to restrict competition is to damage both the process of innovation and the public interest” “What the other John Kay taught Uber about innovation”, January 27.

Indeed but why does FT’s John Kay steadfastly refuse to apply the same criteria when regulators restrict the competition for access to bank credit?

Regulators tell banks: “You can leverage your equity, and the support we give you by for instance deposit insurance schemes, much more with the net risk adjusted margins paid by “The Safe”, than with the same margins paid by “The Risky”

And by that, regulators are de facto restricting the competition for bank credit for all those who ex ante are perceived as risky, like the SMEs and entrepreneurs.

And that also damages the process of innovation and the public interest.

@PerKurowski ©

Was the US Office of Strategic Services’ “The Simple Sabotage Field Manual” used by the Basel Committee?

Sir, John Kay refers to “The Simple Sabotage Field Manual — produced in the second world war by the US Office of Strategic Services, a forerunner of the Central Intelligence Agency — was designed to illustrate how, at little risk to themselves, saboteurs in occupied territories could damage organisations.” “Absurd roots of modern regulatory practice” December 23.

When we see how some few bank regulators, apparently with absolutely no risk for themselves have, by means of credit risk weighted capital requirements, managed to distort the allocation of bank credit to the real economy in most of the world, we could ask whether that field manual fell into the hands of the Basel Committee for Banking Supervision, and about that committee’s intentions.

And when Kay refers to FM Cornford’s procedural rules as an instrument to silence any objection and to “obscure troublesome considerations… and relieve the mind of all sense of obligation towards society”, then we might understand better the continuous rule expansion in Basel II, Basel III and those Basel’s still to come.

Frankly, nothing has sabotaged more our economies than Basel Accord's Basel I’s risk weights of zero percent for the sovereign, and 100 percent for the private sector. To me that was an act of statist regulatory terrorism. I am sure most members in the Basel Committee did it unwittingly… but, frankly, all of them?

@PerKurowski ©

John Kay, is ignorance a defense for regulatory misconduct?

Sir, I refer to John Kay’s “Ignorance is no defense for financial misconduct”, December 9.

Mr Kay, if ignorance stops regulators from understanding how their portfolio invariant credit risk weighted capital requirements for banks dangerously distort the allocation of credit to the real economy; and pushes banks into creating dangerous excessive financial exposures to what s perceived as safe, would that be a defence for regulatory misconduct?

The regulators, with their regulations, rigged the access to bank credit in favor of sovereigns and those perceived as safe and against those perceived as risky, like SMEs. This had disastrous consequences for everyone, except for some bankers who earned big bonuses by being able to leverage bank equity immensely when dealing with what was perceived as safe, or could at least be made out as being safe. 

But we have not even seen the beginnings of holding the regulators responsible for what they did. On the contrary many of them have been promoted.

@PerKurowski ©

Is it not dumb to kill the goose that lays the golden eggs just because it laid a bad one?

Sir, John Kay asks correctly: What purpose is achieved when taxpayers, by fining state-funded hospitals, in effect fine themselves? “It is natural but wrong to blame executives” October 21.

I would go further still by asking: What is the reason to fine corporation that generate jobs in such a way that it weakens them? Instead of in cash, is it not better to have those fines paid in shares… the current shareholders may not like to get diluted, but it is always better to dilute the wealth of the owner of the goose that lays golden eggs than the goose itself.

And of course, if you need clarification, the goose here stands for banks and for Volkswagen.

@PerKurowski ©

John Kay: A progressive business tax in UK, based on £ rent per square foot of space?

Sir, I read with much interest John Kay’s “A nation of shopkeepers in need of new ideas on tax” October 14.

Might he have a progressive business tax, based on £ rent per square foot of space, in mind?

In a way that would help to correct for inequalities derived from unequal growth rates around the country.

In a way that would help to correct for instances the inequalities derived from QEs and similar liquidity injections that tend to benefit more some assets than other.

When I studied to obtain a real estate sales and mortgage advisor license in Maryland US, primarily interested into getting to know more about how the subprime disaster had happened, I was surprised to see that the Federal Housing Administration, FHA, would guarantee a one family mortgage in Montgomery County, Maryland for $625,500, while for instance only US$ 271.000 if that home was in Hattiesburg, Mississippi.

Can you imagine if a Eurozone FHA did the same in the case of Berlin and Athens?

That is another example of how authorities, instead of remaining neutral, reinforce market perceptions and valuations.

@PerKurowski ©  J

It seems experts guilty of totally absurd bank regulations, have managed to enact a powerful Maxwellisation process

Sir, in reference to what could be "The policy choices of high-income countries” taken in order to weather a slowdown, Martin Wolf writes: “politics has almost universally ruled out fiscal expansion; the intervention rates of central banks are near zero; and, in many high-income economies, private leverage is still quite high. If the slowdown were modest, nothing much might be done. The best response to a big slowdown might be “helicopter money”, created by the central bank to stimulate spending”, “A new Chinese export — recession risk” September 15.

Wolf shies away from commenting on how banks are doing and if they are prepared to help out… or even allowed doing so. Many are screaming for higher capital requirements, which, if imposed, would constrain overall lending, especially the kind of risky lending that is most needed when the going gets tough.

Just look at what happens if a company looses a good credit rating. Then immediately banks are required to hold more capital against loans to that company, which reduces their capacity to lend to others, or even forces them to offload other assets.

Today, next to Wolf’s article, John Kay refers to “Maxwellisation… a process by which the … powerful obstruct criticism of their actions” “The tale of the crook and his obstructive legal legacy”.

Clearly current bank regulations issued by the Basel Committee, not only distort the allocation of bank credit in good times but being extremely pro-cyclical are also unhelpful in slowdowns. The lack of possibilities to question these regulations, which includes FT’s silence… makes us therefore wonder whether we are facing a Maxwellisation process enacted for their benefit by bank and ex bank regulators, and other supposed experts on the subject.

PS. Or is it more like what John Kenneth Galbraith wrote: “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”?

@PerKurowski

What would an old days’ bank failure look like with current deposit guarantees and capital requirements for banks?

Sir, John Kay writes about the topic of “other people´s money and one’s own”, and about the power that is “acquired with the savings of the… public” in order to speculate, “Boom, bust and broke trust mark the ages of finance” September 9.

Yes but he ignores those many who manage the relations between “other people´s money and one’s own”, like bank regulators.

Had not regulators allowed banks to leverage their equity and the support given implicitly by taxpayers 60 times or more when lending to sovereigns or the AAArisktocracy, the relations between other people’s money and bank’s own money would have been totally different. For instance when have one seen a hedge fund been able to leverage more than 10 to 1?

Try to imagine the size of an Overend Gurney bank failure in 1866, with current deposit guarantees, and current portfolio-invariant-credit-risk capital requirements for banks? Holy moly!

@PerKurowski

Credit-risk weighted capital requirements for banks makes efficient capital allocation, a mission really impossible

Sir, John Kay writes: “Efficient capital allocation requires above all the knowledge and experience to asses the quality of underlying assets, and the capabilities of those who manage them. Yet the ability most valued in the finance sector in the first decade of the 21st century was a keen appreciation of asset markets themselves. The deployment of such abilities by people with an exaggerated idea of the relevance of these skills, and an overblown sense of their own competence, plunged the global economy into the worst financial crisis since the Great Depression.” “The clever marketeers who crashed the economy”, September 2.

That is true but it is absolutely not the whole truth. Those clever markeeters would not have been able to get as far as they got, meaning to leverage the banks as much as they did, without the intimate cooperation provided by regulators. And these have even just as much, or perhaps even more overblown sense of their competence.

The bank manager John Kay remember from his schoolboy days in the 60s, and “who would base his lending decision as much on his local knowledge and the character of the borrower as on figures”, did not have to deal with credit-risk weighted bank capital requirements.

Sir, no matter how much “knowledge and experience to asses the quality of underlying assets” bankers could have, those capital regulations make any “efficient capital allocation” a mission really impossible.

Sir, dare an answer: Where would we be if our forefathers’ banks had been subject to credit-risk weighted capital requirements?

PS. Behind too many overblown senses of competence, hide too many uncritical journalists in awe.

@PerKurowski

If John Kay truly believes in liberal education, he should help question the decisions of the job-specific trained.

Sir, John Kay writes: “the capacities to think critically, judge numbers, compose prose and observe carefully — the capacities that education can and should develop — will be as useful then as they are today” “The timeless benefits of a liberal education” August 26.

Indeed but that requires that the capacity of thinking critically gets a chance to be heard by those who certify having job-specific skills. And for that to happen those who write newspaper columns have a very special role in forwarding the observations.

Here just one example: Bank regulators, with supposedly many job specific skills, decided for instance that assets rated BB- present immensely more possibilities of generating unexpected losses than assets rated AAA. And as a consequence they require banks to hold much more capital against BB- assets than against AAA assets.

And there are freethinkers like me who holds that to be utter nonsense, because clearly the riskier an asset is perceived, by definition the less are its possibilities to generate unexpected losses. 

But, can I get help to forward this and many other similar observations on our current bank regulations? No - because journalists clearly believe much more in the regulators' job specific skills than in any liberal education and critical thinking. Is it not so Mr. Kay?

@PerKurowski

Why do John Kay and his colleagues cover up bank regulators’ prominent role in creating the Greek tragedy?

Sir, John Kay writes: “For every foolish borrower there is usually a foolish lender. The Greek crisis is not simply the result of Athens’ inept public administration but also of an extensive carry trade on eurozone convergence by northern European banks, notably in France and Germany, which obtained short-term profits by matching northern eurozone liabilities with southern eurozone assets.” “What St Luke would say to Schäuble” July 29.

But however foolish bank lender can be, they can be made even more foolish by their regulators. For instance, between June 2004 and November 2009, because of Basel II and Greece’s credit ratings, banks were allowed to leverage their equity, and the support they received by means of deposit guarantees and similar, 62.5 times to 1 when lending to the government of Greece, while being limited to a 12.5 times to 1 when lending to German, French or Greek SMEs or entrepreneurs. 

And John Kay knows that without those regulatory incentives, based on some foolish aversion of credit risk, banks would never ever have lent to Greece as much as they did. And so the question is why does John Kay cover up for the regulators by hushing this up?

And speaking about crazy risk aversion, besides St Luke, John Kay could do well reading St Mathew, 25:14-30.

14 “It will be like a man going on a journey, who called his servants and entrusted his wealth to them. 15 To one he gave five bags of gold, to another two bags, and to another one bag, each according to his ability. Then he went on his journey… 

24 “Then the man who had received one bag of gold came. ‘Master,’ he said, ‘I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. 25 So I was afraid and went out and hid your gold in the ground. See, here is what belongs to you.’

26 “His master replied, ‘You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? 27 Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. 28 “‘So take the bag of gold from him and give it to the one who has ten bags. 29 For whoever has will be given more, and they will have abundance. Whoever does not have, even what they have will be taken from them. 30 And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.’

The incentives provided by the Basel Committee, more perceived risk more capital – less perceived risk less capital, clearly instructed the bank servants not to behave according to the Parable of the Talents.

PS. It is clear that the ability to which Mathew 25:15 refers to has nothing to do with the ability of repaying the funds but with growing the funds by putting it to good use. In other words: the efficient allocation of bank credit.

PS. And, from what we read, perhaps Pope Francis would also do well pondering a bit more about that parable.

PS. By the way, should the servant St Matthew refers to, refuse to lend at negative rates?

PS. When John Kay mentions ordoliberalism, I must say that I cannot understand how anyone remotely connected to that economic thinking, could accept the distortions in the allocation of bank credit created by current bank regulations.

@PerKurowski