The correlation between the problem loans of banks and the lower capital requirements is 1

Sir bank regulators caused the current financial crisis by allowing banks to hold very little capital, for what was ex-ante officially perceived as not risky, and are deepening it by requiring them to hold more capital when there is none to be found.

Victor Mallet and Miles Johnson should really have titled their article “The bank that broke Spain” June 22 as “The Regulators that broke the bank that broke Spain” For how long will FT turn a blind eye to the sad fact that the Western World is drowning in seriously undercapitalized Bankias?

The Great Bank Retrenchment to the Last Safe Haven is on full speed ahead and so all our banks seem doomed to end up trampled to death on the shores of the Bundesbank and US Treasury.

Lacking a sufficiently large safe haven the Eurozone needs to stop its retrenchment.

Sir, Wolfgang Münchau, in “What happens if Angela Merkel does get her way”, June 18, asks “Why should citizens leave their money in local banks, when foreign investors are pulling out and when even the EU is making preparations to impose capital controls?” Indeed, why? But, worse so, why should they do it when bank regulators in Europe, by means of the capital requirements for banks based on perceived risk, have for a long time been ordering a European retrenchment to safety, foolishly believing that to be possible? 

It is of course the whole Eurozone that is in danger, as there is no way the Europe would find a sufficiently large safe haven for all. And this is why I have often found reason to mention that perhaps the Eurozone should not concern itself so much solely with Greece, Spain, Italy and Portugal, but more proactively try to find a more general solutions, based for instance on a Euro II, or a Euro-North and a Euro-South.

That could perhaps provide it with the tools to get out of this horrendous mess, detonated by bank regulations which among other allowed European banks to lend to Greece leveraging their equity a mindboggling 62.5 to 1... a mess made so much worse by now requiring they reduce to a 12.5 to 1 leverage or less that same exposure.