In a “world full of uncertainties”, how come regulators are allowed to bet our banks on the certainty of perceived risks?

Claire Jones reports that Olli Rehn, a possible contender to replace Mario Draghi opines that Central bankers must have “the ability and agility to manoeuvre though the current world that’s full of uncertainties” “Central bankers face a ‘world full of uncertainties’” November 19.

This is exactly what is wrong, they do accept there are uncertainties all around, but then they are not capable to utter a word when regulators, with Basel II, bet the banks on certainty, by allowing banks to leverage 62.5 times their capital with an asset if only a human fallible credit rating agency had assigned it an AAA to AA rating. 

According to Jones, Rhen agrees with Draghi in that “if Italy wanted ECB help, it had to sign up to a bailout programme from the European Stability Mechanism”. That de facto means that Italy must have to walk the plank as Greece did. 

But, I see not a word about the European Commission “Sovereign Debt Privileges”, that which set a 0% risk weight on Italy’s Euro denominated public debt, that which allowed (or in reality forced) Italy’s banks to overload on that debt. Why should Italy (or Greece), in a Union, have to carry the whole costs of a mistake caused by the Union?

Rhen opines “The only legitimate way of making monetary policy, be it conventional or unconventional, is to look at the economic development in the euro area . . . in its entirety”. He is absolutely right, but then the question is, why have EU not done anything real, in 20 years, to solve the challenges posed by the Euro to the individual nations of that entirety?

Those challenges if not solved, soon, pose a real existential threat to the European Union. Does Olli Rhen really believe that completing a banking union would suffice to take care of that?

@PerKurowski

Bank regulatory obscurantism makes it impossible for Europe (and America) to see light at the end of the tunnel.

Sir, Olli Rehn writes “The eurozone is living through lean times, but there is light at the end of the tunnel”, “Austerity is working – Europe must stay the course”, December 11. 

Forget it, Europe and America have been placed by bank regulators into a tunnel of obscurantism which preaches the belief that development and economic growth can be achieved by avoiding risks. 

As an expression of that, banks are required to have much more capital when lending to those considered as “The Infallible” than when lending to “The Risky”. And, since that effectively signifies blocking the intakes and the escapes of the tunnel, there is just no light to be seen. 

And I refer of course to free market driven risk-taking, and not to any government sponsored risk taking, and which is what regulators would seem to favour when allowing the banks to lend to governments against much less capital than when lending to the citizens. 

In other words Europe, and America, in order to stop stalling and falling, need regulators who know about the importance of praying “God make us daring!”