If prudent finance requires partnerships, why then are not regulators also made liable for bank losses?

Sir, when Basel II states that banks need zero capital when lending to an infallible sovereign and 1.6 percent when lending to slightly more suspect sovereign or private AAA ratings, what does that say with respect to shareholders of the bank? The answer is that for all practical purposes the regulators feel that for that business the shareholders are not really needed. 

And that is why when I read Martin Jacomb’s “Prudent finance requires a return to partnership” December 12, my first reaction was… do we then need credit ratings for the partners?, and my second, should the not bank regulators also be partners of the banks they regulate? They assign risk-weights too, don't they? 

Frankly, before thinking about how to create partnerships able to shoulder the too big to fail, we should be thinking to make shareholders at least 8 percent important, for any type of bank business.

What is ‘socially desirable’ to regulators can be very ‘socially undesirable’ to us

Sir, Sir Martin Jacomb holds that “views on what activities are ‘socially desirable’ should play no part in the regulatory structure” but fails to see that this is exactly what happens when regulators discriminate bank capital requirements based on what is socially desirable to them as regulators, namely that of reducing the risk of bank default, “Hurried reforms will not get banks lending” February 11.

I ask again, for the umpteenth time, what is socially desirable about banks not defaulting if banks do not perform as society should have reasons to expect? Personally I have always argued that the lack of bank failures points to a lack of needed risk-taking, and to anyone who counters with pointing at the many bank defaults in this crisis I tell them these were not the result of bank failures but of regulatory failures.

If bank regulators had not favoured with some truly minuscule capital requirements those operations that they found ‘socially desirable’ having triple-A ratings; or empowered the credit rating agencies way too much, this very ‘socially undesirable’ crisis would not have happened.

But of course, with Sir Martin Jacomb’s general point on the importance of getting the banks to lend, I totally agree. To me it is truly surrealistic to observe how much leeway we are willing to give government bureaucrats to spend our children’s future taxes, when compared to how much we demand the regulators to rein in the banks.

Why should our regulators favour our banks to lend to AAA rated clients? Senseless discrimination?

Sir Martin Jacomb in “Regulators and bankers must share the blame” September 3 is so close to the truth that it hurts. He pinpoints exactly “the singular regulatory error: the failure of the Basle international rules to impose weighty capital requirements on the super senior tranche of securitized mortgage obligations” but then he describes it more as a mistake made and does not question the capital requirement for banks method itself; and this is wrong.

The really hard truth we need to understand and really grapple with is that even if the credit rating agencies had been absolutely right the end results for the economy would be wrong; because the method subsidizes risk adverseness and taxes risk-taking, and that is something that only a society that has had enough and wants to lie down and die does.

No, give me one single economic reason why we should favour banks lending to clients rated AAA? That, to me, is pure senseless discrimination.