It is Robert Jenkins and his bank-regulation buddies who, as an absolute minimum, should be placed on the naughty step

Sir, Robert Jenkins writes “Prioritizing competitiveness is precisely what led to lax regulation”, “A little longer on the naughty step will benefit banks” September 7.

While prioritizing competitiveness between banks, trying to make these follow similar rules all over the world, regulators introduced the risk weighted capital requirements for banks.

That piece of regulation impeded those borrowers perceived as risky, like SMEs and entrepreneurs to compete fairly for access to bank credit, and therefore decreed inequality and economic stagnation.

That piece of regulation, by motivating banks to build up dangerous excessive exposures to what was perceived, decreed or concocted as safe, like AAA rated securities, financing of houses and loans to sovereigns (like Greece), caused the 2007/08 crisis.

Robert Jenkins, as former member of the Bank of England’s Financial Policy Committee should, together with all his bank regulation buddies, as an absolute minimum, should be placed on the naughty step.

Personally I would prefer them having to parade down some major avenues wearing dunce caps and forever be barred from having anything to do with any type of regulations… I mean how dumb can you be to believe that what is perceived as risky is riskier for the banks than what is perceived as safe.

Info: Basel’ private sector risk weights: for AAA rated = 20% and for below BB- 150%

@PerKurowski ©

Robert Jenkins, we can do with just good bankers, though we are in urgent need of more statesmanlike regulators.

Sir, Robert Jenkins, a senior fellow at Better Markets and former member of the Financial Policy Committee of the Bank of England writes about “The long wait for a statesmanlike banker” December 22.

And in it Jenkins refers to Deutsche Banks’ recently appointed chief executive Mr John Cryan, as “part of a new breed of competent, no-nonsense executives who understand how to run a business. They know that risk and reward must be linked; that senior staff must be held accountable, and that their institutions must have sufficient loss-absorbing capital to take the hits when things go wrong, as they inevitably will. Why not insist that their peers in the industry take the same approach and visibly support regulators in this quest?”

What? “Support the regulators in this quest”? It is precisely the current regulators who, with their capital requirements for banks based on perceived credit risk, have utterly distorted the links between risk and rewards.

We can do with just good bankers, but we sure need much more statesmanlike regulators who care much more about the purpose of our banks, than about the survival of our banks.

@PerKurowski ©

Utterly failed but yet promoted bank regulators, evidence the mother of all lack of accountabilities.

Sir, Robert Jenkins holds that “For the good of his own reputation as well as that of his institutions and British banking, Mr Flint should go”, “How the HSBC chairman can restore accountability at his bank” March 11.

Agree, but so should also all regulators who had anything to do with those failed and outright stupid regulations which caused the current crisis, and which keep on dangerously distorting the allocation of bank credit to the real economy.

These regulators were so dumb that, instead of looking at whether bankers were perceiving credit risks correctly or not, and at how they were managing those perceived risks, they decided to look at the same risk bankers were perceiving in order to set their equity requirements for banks. And, obviously, clearing for the same perceptions a second time, distorted all common sense out of the allocation of bank credit… and caused banks to create excessive and dangerous exposures to the AAArisktocracy.

The Jaime Caruana, Mario Draghi and Mark Carneys of the bank regulatory world, instead of being sent home in shame after the Basel II flop, were promoted and some of them even instructed to proceed with elaborating Basel III.

As a result they still do not even acknowledge their mistake

Talk about lack of accountability!

@PerKurowski

Regulator’s attempt to hold back the financial tide is worse than futile, it is outright dangerous.

Sir, Robert Jenkins holds that “Regulator’s attempt to hold back the financial tide are futile” April 17.

“Futile”? No! Much worse! Outright dangerous! By building higher levels (higher capital requirements) where they and the banks perceive the risks as higher, they fuel the strength of the storm that will, as it always has done in banking, hit the shores perceived as absolutely safe, causing flooding and much sufferings.

It is not, as it translated into a permission to run a 33 to 1 debt equity ratio, that the 3 percent leverage ratio is clearly insufficient What’s worse is that by keeping the risk weights, those which leverage the negative results of perceiving the risks insufficiently, or excessively, the regulators evidence that they still believe themselves to be, the King Canute risk managers of the world.

But that of course could have to do with the fact that most of their subjects, like FT, are too subservient to allow voice to those who question their sanity.

PS. Risk-weighting: “Most humans suffer from this intellectual weakness: to believe that because a word is there, it must stand for something; because a word is there, something real must correspond to the word… As if lines scribbled by chance by a fool would have to be always a solvable rebus!” Fritz Mauthner.

What was “not-risky” turned into risky because it was allowed to earn too high returns on bank equity.

Sir, I much appreciate Martin Wolf mentioning that I have reminded him regularly that “crises occur when what was thought to be low risk turns out to be very high risk”, arguing that “For this reason, unweighted leverage matters”, “Seven ways to clean up our banking ‘cesspit’” July 13. 

This is true, but what I have mostly tried to remind and explain to everyone, with less success, is about the dangerous distortion regulatory risk-weighting produces. 

For instance, Robert Jenkins, Member of the Financial Policy Committee, Bank of England, in a recent speech said: “The successful investor is not interested in promises of short-term return on equity; he is interested in achieving attractive risk-adjusted returns. The higher the perceived risk, the higher the return required. The lower the perceived risk, the lower the return expected. Capital will flow with either combination but its price will be different” 

What Mr. Jenkins, has not fully realized yet is that when regulators decide to allow banks to leverage their equity much more when something is perceived as risky than when something is perceived as not risky, they completely distort the system, producing the opposite; the higher the perceived risk the lower return on equity and the lower risk the higher the return. 

And this distortion is sheer lunacy, as it assassinates the risk-taking a society needs in order to move forward; and also dooms our banks to end up gasping for profits and capital on some beach that was perceived as very safe, but was not, when it became overcrowded

More confidence requires more distrust

Sir Robert Jenkins writes that “Confidence is what we need, not more alchemy” June 6, but let us not forget that it was an excess of confidence, by the regulators in the capacity of the credit rating agencies, that caused much of this turmoil. In this sense we could reach the somewhat peculiar conclusion that confidence building must also include distrust building.