Does Schäuble know ECB’s Draghi agreed with allowing German banks to leverage over 60 times when lending to Greece?

Sir, Anne-Sylvaine Chassany, James Politi and Peter Spiegel write about “Wolfgang Schäuble, advocating a Greek ‘timeout from the eurozone’ for ‘at least the next five years’ if Athens did not accept the bloc’s exacting conditions for a new bailout”; and of that “Germany puts more onus on stricter rules and control from the centre”. “Fears over German power as Merkel and Schäuble end the good cop, bad cop routine” July 18.

That leads me to question whether Wolfgang Schäuble really knows that rules and control from the centre, in this case by the Basel Committee, allowed German banks, between June 2004 and November 2009, to leverage their capital over 60 times when lending to Greece.

And does Schäuble know that banks in Greece are currently required to hold much less capital when lending to Germany or France, than when lending to Greek SMEs and entrepreneur, so as to help Greece develop the means to be able to at least somewhat serve its monstrous debts?

I ask so because it would seem much more important for Schäuble to request a very long timeout from all ongoing negotiations about the future of Europe, the Eurozone and Greece, of the Basel Committee and of all those who have directly had anything to do with current bank regulations.

And does Schäuble know that Mario Draghi, as a former chair of the Financial Stability Board, is one of those severely compromised bank regulators?

Greece should be ashamed of presenting public sector pensions as a deal breaker, instead of youth unemployment.

Peter Spiegel and Kerin Hope report on FT’s front page that: “Mr Tsipras insisted he would continue to resist the cuts to public sector pensions demanded by creditors” June 18.

Sir, if I was a young unemployed Greek, I would go mad if I saw that the point of honor for my government, in order to negotiate or not with its creditors was the payment of the pensions of the public sector. I don’t understand how it can get away with this… or have all young Greek with any initiative already left Greece.

If I was Tsipras the following is the point I would make… or the line I would draw.

Europe, our bank regulators in the Basel Committee for Banking Supervision, all picked by you and none by Greece, decided that banks needed to hold much less capital when lending to our government, than for instance when lending to any unrated European SME.

And that meant that banks could leverage their equity and the support they got from the society much more when lending to our government than for instance when lending to any unrated European SME.

And that meant that banks could earn much higher risk adjusted returns on their equity when lending to our government than for instance when lending to any unrated European SME.

And so of course banks lent too much to our governments and too little to our SMEs.

If Greece wants to get out of its current predicament, and to be able to offer its youth good employments, these stupid risk adverse regulations must be reversed.

But that takes a lot of bank capital and we need you to helps us re-capitalize our banks. By the way you have the same problem with your banks.

@PerKurowski

ECB has no moral right to inject any liquidity in Europe, if it is only going to increase the distortions

Sir, I refer to Peter Spiegel’s “ECB defends crisis bond-buying in high-level legal hearing” October 15.

The credit-risk weighted capital (equity) requirements for banks distort any liquidity injection of the ECB in Europe. And so, while the ECB seem to not care one iota about that, they have not earned the moral right to buy bonds, most especially sovereign or other “absolutely safe” bonds that are anyhow so much favored by these regulations.

No ECB, instead of buying “absolutely safe” bonds should allow bank to in relative terms hold less capital against exposures to the “risky”… since there is where new liquidity could do the most good.

Europe… it is dangerous to overpopulate safe havens, and equally dangerous to under explore the more risky but perhaps much more productive bays.

Do we need to use force to make Mario Draghi and ECB to accept urgently needed structural reforms in bank regulations?

Sir, Claire Jones and Peter Spiegel report that ECB’s Mario Draghi has called for Brussels to “Use force to secure economic reform” meaning “structural reforms… they believe would strengthen longer-term growth prospects”, July 10.

ECB should be ashamed of itself. If there is any structural reform that is urgent that is getting rid of those crazy risk-weighted capital requirements for banks which are hindering credit to reach those we most need to have it now, namely medium and small businesses, entrepreneurs and start-ups.

And I guess the main reason for the ECB not to be pushing for that is it would signify Mario Draghi admitting have been part to one of the most monstrous regulatory mistakes ever.

There’s a world of difference between ex ante perceived risks and ex-post realized risks.

Europe, ECB, if what FT writes is what IMF will recommend you… please don’t listen to it. They’ve lost it!

Sir, Peter Spiegel and Claire Jones write that “IMF urges eurozone bond purchases” “primarily of sovereign assets” “to stimulate growth”, June 19.

Forget it! In the best of cases you would receive a short term stimulus that would lead to some flabby obesity type growth, because injecting liquidity by buying bonds sovereign debt, amounts only to a carbs and fat based diet.

No, if you are going to stand a chance to achieve some type of sturdy muscular growth, you have to open up the doors for the banks to lend to the medium and small businesses, to the entrepreneurs and the start-ups, to the real proteins of the economy, those doors that have been shut by the risk-weighted capital requirements for banks

IMF has lost it? YES!

To measure the real costs of bank credit look at those 100 percent risk weighted. The sovereigns are subsidized

Sir, when Peter Spiegel writes about Italian and Spanish borrowing costs are at the lowest levels since the euro´s launch, I presume he refers to the borrowing costs of the sovereign Italy and Spain. I say this because I am sure of that if he went down to the poorer quarters where the Italian and Spanish small businesses and entrepreneurs hang out, he would, at least in relative terms, find a quite different reality, “The eurozone won the war – now it must win the peace” May 17.

One of the current problems is being able to separate the effects from real lower risk appreciations of sovereigns, from the subsidies that much lower bank capital requirements when lending to them imply. In these days of extreme bank capital scarcity the low rates paid by sovereigns might hide the fact that other borrowers have to pay higher rates or do not get access to bank credit at all.

As I see it the eurozone has won no war… it has not yet even discovered who one of the real enemies is, namely that absurd and dangerous risk aversion introduced by its bank regulators. Real peace in Europe, besides other requires throwing away the whole concept of risk weighted bank capital requirements.

The worst austerity is the regulatory risk-taking-austerity imposed on banks.

Sir, Claire Jones and Peter Spiegel report that “German finance minister criticizes Lagarde call to ease up on austerity”, October 12.

Sincerely, it would sure do all those present at the IMF and World Bank Meetings in Tokyo much good to discuss the “austerity” that hurts the most. I refer to that of the risk-taking-austerity which results from current capital requirements for banks based on ex-ante perceived risk.

Those risk-taking austere regulations caused the crisis, by giving banks extraordinary incentives to lend to “The Infallible” and avoid lending to “The Risky”, the small businesses and entrepreneurs. 

And at this moment of extremely scarce capital, those regulations, and now made even worse because of liquidity requirements based on the same perceived risk, are discriminating more than ever against The Risky, and completely locking them out from having access to bank credit in competitive terms.

How on earth do they think we can get out of this economic mess they helped to place us in without the help of “The Risky”?

Don’t forget the non-AAAs

Sir Peter Spiegel, David Oakley and Ralph Atkins report that “EU rescue fund rated triple A” September 21. Do they really know what that means?

It means that the banks when at some point in the future they are asked to acquire bonds or otherwise lend to European Financial Stability Facility they be able to do so without the need of capital. It will mean that it will be cheaper to fill the hole of the past than to build the mountain of the future. Good or bad? If I owned Greek bonds and wanted to get bailed out I would find that great but, if what I wanted was a bank loan to set up a new venture it would surely be bad, because I would have to pay for the cost of the discrimination in favor of the EU.

Since Basel III kept intact all the risk-weight discriminations in favor of the AAAs and the Jean-Claude Trichet bureaucrats of this world, we should never forget the non-AAAs and private borrowers who are and will have to pay for it all.