If I were a bank regulator, I would set the lowest capital requirements against the loans to young entrepreneurs

Sir, Leo Lewis writes Tatsuo Yasunaga, the Mitsui & Co chief believes that “The innovation of which he is most proud is a support system that encourages staff to create business start-ups within the company. Twenty proposals have been received in the first year. ‘It encourages our young guys to . . . run the business themselves… I’d like to encourage them to enjoy business’”, “Japan’s champion of young entrepreneurs” October 30.

Do I agree? If I were a bank regulator I would make sure banks would be able to earn their highest risk adjusted returns on equity, when lending to the young on which we all depend. What they now do fixing the capital requirements with risk weighs of 0% on sovereigns, 20% on AAA rated, 35% on purchase of houses and 100% on unrated entrepreneurs, is exactly the opposite.

PS. Major bank crises never ever result from excessive exposures to "risky" young entrepreneurs.

@PerKurowski

The Basel Committee’s and FSB’s bank regulators, seems to fit well the description of a Japanese “salaryman”.

Sir, Leo Lewis writes “in 2016, the [Japanese] salaryman — unassertive, allergic to risk and with a growing list of corporate debacles to his name — has switched from asset to liability. To economists who see labour market reform as Japan’s only hope, it ranks among the country’s most insidious threats”, “Curse of the salaryman” May 3

And Koichy Nakano at the Sophia University in Tokio holds that men working in offices tied to group think and respect for authority, “is the very opposite of the creativity and original behaviour that the economy needs at this point”

So what are the key words here? Risk aversion and groupthink.

Sir that is precisely two of the most usual key words I use when commenting on the Basel Committee for Banking Supervision’s and the Financial Stability Board’s work on regulations.

And on "debacles"... what about the 2007-08 crash, which resulted directly from regulators allowing banks to earn much higher expected risk adjusted returns on equity on assets perceived, decreed or concocted as safe than on assets perceived as risky.

   

Could it be that Mario Draghi, Stefan Ingves, Mark Carney and other BCBS’s FSB’s experts are “salaryman”? Well, if not, they are at least clearly not assets but liabilities. 

Here is an aide-memoire about current bank regulator’s craziness. 

@PerKurowski ©