FT, when have you lately heard a regulator state that allocating credit efficiently is a bank’s most important purpose?

Sir, Jonathan Ford writes “the banking lobby has been relentless in its opposition to reform, seeking to present it in terms of false choices — between growth and safer banks, or between regulation and a successful financial system.” “Relief for banks as Britain puts a leash on its financial watchdog” July 20.

Of course these are false choices… but the fact is that regulators pursuing safer banks are negatively affecting growth. Their credit risk weighted capital requirements for banks distort immensely the allocation of bank credit to the real economy.

And clearly, from what Ford describes, Martin Wheatley of the Financial Conduct Authority saw more his role as an bank inquisitor, and had no concern whatsoever about credit allocation.

Let us hope his successor is willing to include a hefty dose of regulatory mea culpa, and does not just follow in the political convenient track of only holding “bankers publicly accountable for their actions”.

@PerKurowski

Who’s going to fine bank regulators for manipulating credit markets?

Sir, Caroline Binham quotes Martin Wheatley, head of the Financial Conduct Authority with opining that fines are working in order to stop foreign exchange manipulations, “Bank fines credited for culture shift”, May 22.

We will see if that’s so, cross your fingers. But, much more important though, for all of us, is to stop bank regulators from manipulating the credit markets with their credit-risk-weighted capital (equity) requirements for banks.

With that they distort the allocation of bank credit to the real economy, for absolutely no reason… since major bank crises never result from excessive bank exposure to what is ex ante perceived as risky.

@PerKurowski

But also beware of the much greater risk derived from excessive lack of testosterone and dopamine

Sir, the fundamental problem with good articles like Sarah Gordon´s “Call in the nerds – finance is no place for extroverts”, April 25, is that they tend to analyze risks from the perspective of when risk-taking goes bad, without caring much for when risk-taking goes right.

The problem we are facing now is that bank regulators, with too little testosterone, and too little dopamine, and too little understanding of what they were doing, gave the banks extraordinary incentives to lend and invest in what was perceived as “safe” and to stay away from what was perceived as “risky”… and so the banks did… and loaded up on AAA rated securities, Greece, Spanish real estate and others safes.

Indeed if regulators had incorporated more behavioral analysis then they would not have based the capital requirements for the banks based on perceived risk, like that in credit ratings, but based to how bankers react to perceived risk. And then, instead of more-risk-more-capital less-risk-less capital, they might have applied a somewhat inverse capital requirements, since bank crisis have never ever resulted from excessive bank exposures to something perceived ex ante as “risky.

PS. As gold is mentioned, just as a curiosity let me remind you that in the Report on Global Financial Stability 2012, of April last year, the IMF listed 77.4 trillion dollars in safe assets and therein gold represented 11 percent.