Like algorithms humans can also produce peculiar and unjust decisions, and be almost just as faceless.

Sir, Gillian Tett writes: “as institutions increasingly rely on predictive algorithms to make decisions, peculiar — and often unjust — outcomes are being produced.” “The tragic failings of faceless algorithms”

Indeed, but humans are also capable of producing peculiar and unjust decisions.

What could be more peculiar than regulators wanting banks to hold more capital against what by being perceived as risky has been made innocous to the bank system, than against what, because it is perceived as safe, is so much more dangerous?

And what is more unjust than because of these regulation allowing easier financing to those who want to buy houses, than to those entrepreneurs who are looking for a possibly life changing opportunity of a credit. 

Ms Tett quotes mathematician Cathy O’Neil’s Weapons of Math Destruction with: “Ill-conceived mathematical models now micromanage the economy, from advertising to prisons,” she writes. “They’re opaque, unquestioned and unaccountable and they ‘sort’, target or optimise millions of people . . . exacerbating inequality.”

Well “opaque, unquestioned and unaccountable” that applies equally to the bank regulators who do all seem to follow late Robert McNamara’s advice of “Never answer the question that is asked of you. Answer the question that you wish had been asked of you”

And on “exacerbating inequality”, the regulators de facto decreed inequality

https://subprimeregulations.blogspot.com/2016/03/decreed-inequality.html

PS. An aide-mémoire on the major mistakes with the risk based capital requirements

@PerKurowski

#BoE #FSB Mark Carney why do you bank regulators discriminate so much against us SMEs and entrepreneurs?

Sir, Mitul Patel with reference to that “The Bank of England’s Monetary Policy Committee will formally meet on Thursday for the first time since the EU referendum result” expresses many valid concerns. “Question marks remain as BoE grapples with monetary policy poser” July 12

But the following question is in my mind of much larger importance:

Mr. Mark Carney, you as the chair of the Financial Stability Board must be well versed on the subject of bank regulations, and so could you please explain to us SMEs and entrepreneurs the following?

We, who are usually perceived as risky, usually perceive much less bank credit and pay much higher risk premiums than those perceived as safe. And so, why do banks, when compared to the capital they need to hold against those perceived as safe, need to hold much more capital against loans to us.

Since banks can then leverage their equity, and the support they receive from taxpayers much more with assets perceived as safe, than with loans to us, we now have a much harder time to provide the banks with competitive risk adjusted ROEs. And so we get even less bank credit or have to pay even higher interest rates.

And to top it up we cannot understand where you all got the idea that banks could build up the excessive and dangerous exposures that could threaten the bank system, with small and high interest rate loans to borrowers like us.

So Sir, can you explain it all for us? Why should our access to bank credit be curtailed? Are we not useful to the real economy?

Thanks,

Will Mark Carney dare to take that question, or will he as I once heard Robert McNamara recommend: “If they make you a question you don’t like just answer the question you wanted to hear”?

@PerKurowski ©