What if Germans knew German authorities approved of giving Greece a 0% risk weight?

Sir, Mehreen Khan writes, “hawkish governments, led by Germany… are reluctant to award Greece more generous terms that mean their taxpayers are not paid back in full” “IMF signals need for more Greek debt relief” August 1.

The historical fact is that European central bankers, for the purpose of the risk weighted capital requirements for banks, assigned Greece a 0% risk weight. That meant banks needed to hold no capital (equity) when lending to Greece. That meant that among other German banks, caused Greece to take on that excessive debt that lead it to its current tragic predicament.

Some will argue that Greece also played statistical shenanigans with its economic data. That is true, but if German banks had to hold as much capital on loans to Greece than what they needed to hold against loans to German entrepreneurs or German small businesses, you could bet your last Deutsche Mark, sorry your last Euro, on that German banks, no matter how good economic data on Greece looked, would not have lent it a fraction of what they did. 

And now IMF’s calculations find Greece’s debt costs will “begin an uninterrupted rise” after 2038, to about 20 per cent of the country’s gross domestic product every year.” Sir, is it really fair to single out some groups of European citizens to pay for the mistakes of everyone’s European authorities? Should that not be a totally shared responsibility?

Germans should be aware that at this very moment German banks, are required to hold much less capital when lending to its government or to some other governments, than when lending to German citizens… and that dooms Germany, sooner or later, to end up being another over-indebted Greece. And that applies to banks and nations much everywhere.

May I make a suggestion to Germans, and all Europeans, and all Americans, and all other? If so, that would be to get rid, immediately, of bank regulators that are either so statist so as to assign the sovereigns a 0% risk weight, or so loony so as to believe that what is perceived as risky is more dangerous to their bank system than what is perceived as safe.

PS. And don’t tell us they did not know they were favoring sovereign debt so much

PS. Some in Germany are aware of the problem

@PerKurowski

What kind of tariffs is protectionist Michel Barnier thinking of imposing on banking and financial services provided by the City of London to Europeans?

Sir, Mehreen Khan’s, Jim Brunsden’s and Sofia George Parker’s write thatin reference to that “the EU would have more to lose from cutting off the City of London than Britain would” Michel Barnier said: “This is not what we hear from market participants, and it is not the analysis that we have made ourselves.”“Barnier dismisses UK hopes of special market access for London after Brexit” April 27.

Sir, I must confess that Michel Barnier does not qualify as my favorite EU Brussels technocrat, but with this he certainly proves himself to be a protectionist, completely in the hands of the European financial intermediaries (the aluminum and steel producers) and with little consideration to all those European consumers of financial services that might prefer using the services and the legal framework provided by the City.

What kind of tariffs is Barnier thinking of imposing on banking and financial services? Has Michel Barnier really been authorized to impose on behalf of all the European Unions his will on all Brexit negotiations?

Sincerely, I do not think Barnier has thought this thru. He might be setting off a real European capital flight to London. 

@PerKurowski

The severity of Greece’s financial crisis was caused, directly, by totally inept bank regulators

Sir, Jim Brunsden, Mehreen Khan and Kerin Hope report “Greece is approaching a momentous moment: the end of eight years of international bailouts that forced the country into unprecedented belt-tightening in exchange for a cash lifeline from eurozone governments and the IMF” “Eurozone and IMF are still to agree a package as deadline approaches” April 27.

What I find impossible to understand is how European bank regulators, and European central bankers, have been able to hide from the Greeks the fact that they directly caused that crisis to be so much worse than it would have been, had they not meddled.

For the purpose of the capital requirements for banks, they assigned Greece’s public debt a 0% risk weight, and this as if Basel II’s credit rating dependent minuscule risk weight of 20% was not bad enough.

Would Greece have found itself in such troubles had banks needed to hold the same capital when lending to the Greek government than when lending to Greek citizens? Absolutely not!

Those retirees protesting against pension reforms, and all those young Greeks who have had to left their country in order to stand a better chance in life, should now all jointly be protesting in Basel against the Basel Committee of Banking Supervision, the Financial Stability Board and all bank regulators.

https://teawithft.blogspot.com/2015/06/europe-you-want-truth-it-was-not-euro.html

@PerKurowski

So now Brussels wants to join forces with Facebook, Google and alike, in order to also extract value from our personal preferences.

Sir, Mehreen Khan, Alex Barker and Rochelle Toplensky report that “Brussels is thinking about a “levy, which is likely to be set at a rate of 3 per cent… raised against advertising revenues generated by digital companies such as Google…fees raised from users and subscribers to services such as Apple or Spotify, and income made from selling personal data to third parties… it will raise about €5bn a year.” “Brussels proposes levy on Big Tech digital revenues” March 16.

For years I have argued that we users should have right to charge something for our preferences disclosed on the web, not only because that could yield a partial funding of a Universal Basic Income scheme, but, even more importantly, because that would help to limit the bothering and the waste of our limited attention span.

But seemingly Brussels wants to hear nothing about that, they as self appointed redistribution profiteers, want in on that revenue stream.

It is just like if governments, instead of helping to rid ourselves of the fastidious robocalls selling us all kind of products and services, would now share the incentives to push those calls even more.

Sir, though I do not live in Britain, or in Europe for that sake, I was pretty sure I would not vote for a Brexit… but every day that passes, and I read about things like this, the less sure I am of that.

@PerKurowski

Wolfgang Schäuble, bank regulators imposed on Europe (and the world) a very dangerous risk taking austerity

Sir, Guy Chazan quotes Wolfgang Schäuble with: “Economists all over the world are concerned about the increased risks arising from the accumulation of more and more liquidity and the growth of public and private debt. I myself am concerned about this, too”, “Schäuble says debt and liquidity levels endanger global economy” October 9.

If you put a risk-tax on sports, to cover for the societal costs of injuries, like a10 percent tax on cricket and one of 1 percent on croquet, would you not expect the result being many more playing croquet than cricket, with whatever implications that could have for the society in general.

That “accumulation of more and more liquidity and growth of public and private debt”, is made worse by the fact that this is being so distorted by the risk weighted capital requirements for banks; those which de facto are a subsidy to “The Safe” and a tax on “The Risky.

According to Chazan “Mr Schäuble also warned of risks to stability in the eurozone, particularly those posed by bank balance sheets burdened by the post-crisis legacy of nonperforming loans”. To me it is amazing to observe how regulators seem to concern themselves so much more with the ex ante perceived risks. than with the ex post realities.

And then Jim Brunsden Mehreen Khan and Guy Chazan write that though Wolfgang Schäuble “was an architect of the stringent bailout programmes carried out in Greece and elsewhere during the eurozone’s sovereign debt crisis, he insists the goal was never to impose austerity on Europe”, "Schäuble feels vindicatedby tough reforms in bailout nations"

Schäuble, being a German lawyer, could perhaps be personally excused, but all those economists and other technocrats surrounding him should have informed him that those risk-weighted capital requirements were imposing one of the most dangerous kinds of austerity, that of insufficient risk-taking.

“Insufficient risk-taking?” “Have you gone mad Kurowski?” “Have you not seen all the excessive risk-taking that took and is taking place?”

Not at all, it was, and is, excessive exposures to “The Safe”, like to sovereigns, AAArisktocracy and mortgages that caused the crisis. That’s more excessive risk aversion.

It is also insufficient bank credit to “The Risky” like to SMEs and entrepreneurs that allows so much QE and low interest rates stimuli to go to waste.

Sir, I strongly believe that Mr Wolfgang Schäuble would never pass my litmus test for the initial screening of a central banker or a regulator, but then again neither would you.

@PerKurowski

Transparency International, in bank regulations there’s no transparency; there are too many unanswered questions

Sir, Mehreen Khan writes that in a report, carried out with the co-operation of ECB officials, Transparency International said the central bank’s “accountability framework is not appropriate for the far-reaching political decisions taken by the governing council”. “ECB executive questions role over banks” March 31.

Khan writes: “Yves Mersch, one of six executive board members, said the ECB’s new role as the Eurozone’s banking regulator, should be subject to greater scrutiny [especially since] “The Eurozone’s largest lenders are now subject to a watchdog called the single supervisory mechanism (SSM), established as an arm of the ECB”

The Chairman of the Group of Governors and Heads of Supervision (GHOS) of the Basel Committee for Banking Supervision (BCBS) is none other than Mario Draghi, the President of the European Central Bank (ECB). From 2009 till 2011 Draghi was the Chairman of the Financial Stability Board (FSB). In 2005 he was appointed Governor of the Bank of Italy and in April 2006 he was elected Chairman of the Financial Stability Forum, later FSB. In 1991 Draghi was named general director of the Italian Treasury, and held this office until 2001.During this time, he chaired the committee that revised Italian corporate and financial legislation and drafted the law that governs Italian financial markets. Between 2002 Draghi was vice chairman and managing director of Goldman Sachs International and a member of the firm-wide management committee (2002–2005).

In this respect few would seem to have to know so much about current bank regulations as Mario Draghi. So one could presume he should be able to answer some very simple questions… unless of course he has no answers…

Here follows a link to some of the questions I would like to ask.

In the name of any basic transparency, should Mario Draghi not answer these, at least by email? 

Sir, I know you think of me as obsessive on this issue. I am, the distortions in credit allocation produced by the regulators are no laughing matter. But in this respect you are, just as obsessively, avoiding your own responsibility to convey to authorities questions from your readers.

@PerKurowski