Do FT reporters really understand that capital, as in capital requirements for banks, refers not to general funds but to equity?

Sir, Christopher Thompson reports “Europe´s banks set for €250bn injection” August 18.

And that money, which according to Mario Draghi could eventually increase to €850bn, is to counter the fact that “Overall eurozone banks have decreased lending to the region´s businesses by €561bn since 2009 according to research by RBS, as they seek to raise capital and cut bloated balance sheets”

And I wonder if it is really understood that what the European banks need for renewing lending, to for instance SMEs, much more than that kind of cheap ECB funding, is the bank equity that regulators require them to hold especially much of when lending to those deemed “risky”, as compared to the equity banks need to hold when lending to those deemed “absolutely safe”.

Could the confusion result from that, for instance FT reporters, think of “capital” more in terms of general funds and not in terms of equity?

Could as it would seem Mario Draghi be equally confused about it, even though he was the chairman of the Financial Stability Board? Holy moly!

FT, with respect to ECB and any new LTRO, dare not to withhold the most important advice

Sir, in “ECB’s next steps”, September 27, you write that “Providing cheap loans to the banks is no guarantee that the money will find its way to families and businesses”. Of course not! Banks now suffer a tremendous lack capital, and since lending to “The Risky” requires the most of it, there will be no such lending.

And then you conclude “Putting the stability of Europe’s banking system beyond doubt is arguably more important than a new round of cheap loans”. But No! Hold it there! That’s is exactly what got Europe in trouble in the first place.

Precisely because of searching for bank stability, so fanatically that no consideration was given to how bank credit was allocated in the real economy, the regulators allowed banks to hold much much less capital for whatever exposures were ex ante perceived as “absolutely safe” than for exposures perceived as “risky”. And so, as was doomed to happen, the banks ended up with huge exposures to the absolutely-safe-gone-very-risky, all aggravated by the fact of also having little capital.

Of course “new long term financing operation should not come at the expense of capital” but much much more important than that, is that no new LTRO should be made available, before getting rid of the so distorting risk-weighted bank capital requirements.

And FT, if you are to be true to your motto, “Without fear and without favour”, you should not withhold such recommendations only because one of the responsible for this regulatory stupidity is Mario Draghi, a former chairman of the Financial Stability Board, who now happens to be the president of ECB.

The world is much better off thinking that the risky are less risky than we think them to be, than that the safe are as safe as we think.