Fed, before lowering interests, tear down the Basel wall that keeps “risky” from having fair access to bank credit

Sir, George Magnus discussing the increase of interest rates writes: “If the Fed continued with financial market stability as the leitmotif of policymaking, a later more disruptive policy adjustment and greater instability are the all too likely outcomes” “Fed should start making clear it faces difficult trade-offs” September 22.

I agree but before thinking of increasing rates, the Fed must make certain it tears down the regulatory Basel Committee wall that is keeping SMEs and entrepreneurs from gaining fair access to bank credit. The zero rates the Fed and other have been experimenting with the last seven years have not been able to reach the risky because of credit-risk weighted capital requirements. To increase interest rates, before eliminating this Maginot line built by the Basel Committee so stupidly where the passing was already difficult, would really be to leverage the difficulties of the real economy even more.

And it is all really about picking some low hanging fruit because, though some individual banks might have suffered, never ever has a major bank crisis been caused by excessive exposures to what is perceived as risky.

Few can inject so much vitality into a sagging economy as the tough we need to get going when the going gets tough, like the SMEs and entrepreneurs. And so therefore, if I was the Fed, I would immediately make sure that banks were not obliged to hold one cent more of capital than what they already hold against all assets, if they lend to risky SMEs and entrepreneurs.

The zero rates the Fed and other have been experimenting with the last seven years have not been able to reach those perceived as risky. To increase interest rates before eliminating any silly regulatory barrier, amounts to an assassination.

@PerKurowski

The Basel Committee’s lousy Maginot Line

It is impossible not to see now that the financial regulators in the Basel Committee, trying to fend off a bank and a financial crisis, constructed an incredibly faulty Maginot Line.

It was built with lousy materials, like arbitrary risk-weights and humanly fallible credit rating opinions.

And it was built on the absolutely wrong frontier, for two reasons:

First, it was build where the risk are perceived high, and where therefore no bank or financial crisis has ever occurred, because all those who make a living there, precisely because they are risky, can never grow into a systemic risk. Is being perceived as risky not more than a sufficient risk-weight?

Second it was built where it fends of precisely those clients whose financial needs we most expect our banks to attend, namely those of small businesses and entrepreneurs, those who could provide us our next generation of decent jobs and who have no alternative access to capital markets.

Now with their Basel III the Basel Committee insists on rebuilding with the same faulty materials on the same wrong place and it would seem that we are allowing them to do so.

I am trying to stop them… are you going to help me or do you prefer to swim in the tranquil waters of automatic solidarity with those who are supposed to know better?

The implicit stupidity of the current Basel regulations could, seeing the damage these are provoking, represent an economic crime against humanity!