Current bank regulations would have prevented no previous crises, much the contrary.

Sir, John Kay writes: “we devise rules that would have prevented the latest crisis from have happening if they had existed a decade earlier”, “Leveson should have learnt the lesson of the banking crisis”, January 5.

That might be applicable to many crisis, but not to the one that began in 2007-08. Had the regulators really looked at all the earlier crises when they designed Basel II in 2003-04, they would have ascertained that all the crises resulted from excessive exposures to assets that were ex-ante perceived as absolutely safe, but that ex-post turned out to be risky. And had they considered that they would never ever have designed capital requirements for banks which are much lower when the perceived risk is low than when it is higher, but could perhaps even have contemplated capital requirements that went 180° in the opposite direction.

John Kay is correct though when he writes: “Independence should mean regulators are free to take day to day decisions free of political interference, not that regulators are free to define policy directions for themselves.” But, the best way to ascertain all that, is for the purpose of the regulations, in this case the purpose of the banks, to be clearly defined between all parties concerned, including borrowers, and, about that there is for instance not a single word in the whole Basel framework.

FT finally says “Basel Committee, screw you!”

And suddenly, out of the blue, without really explaining your reasons, you hold in relation to bank capital that “the Bank of England is right to argue that banks should not meet their capital shortfalls by simply pulling back from their domestic loans. This surely means setting absolute capital requirements not ratios”, “A warning flag for Britain’s banks” December 3. 

Though of course you cannot mean "setting absolute capital requirements" that has nothing to do with any ratio, whatever you now mean with all that of which I have been trying to illuminate you on for years and  around 900 letters, and which by the way could make interesting material for a “Me and FT” book, the fact is that the only real pillar of current bank regulations coming out from Basel in I, II, and III is capital requirements based on perceived risks. 

And so therefore, if I take the liberty to edit what you write, you are effectively saying “Basel Committee, screw you!” Welcome to the club FT! This is sort of new territory for you eh? Though I guess some of you will be saying you always thought so! 

PS. The Leveson Report is about how government should control media. Might not we also need a report on how media should control media?

PS. False hopes... more than 2 years later FT is yet not speaking out about the distortions produced by risk-weighted capital requirements.