Elizabeth Warren, as a member of United States Senate Committee on Banking, might not perform entirely her own duties

Sir, Barney Jopson reports that Senator Elizabeth Warren is requesting the replacement of Mary Jo White as Chair of the Security and Exchange Commission “Warren wants SEC head fired for ‘undermining’ administration” October 15.

I have no opinion on how Mary Jo White has been performing her duties at the SEC but, the United States Senate Committee on Banking, Housing, and Urban Affairs, of which Ms Warren is a standing member, is lacking carrying out in its own responsibilities.

I hold that since to this date I have not seen any effort on part of that committee to ascertain if, and if so how much, the risk weighted capital requirements distort the allocation of bank credit.

This is not a minor issue. For a starter it could ask bank regulators for a full explanation of the risk weights of 0% when financing the sovereign (the King), 20% the AAArisktocracy, 35% housing and 100% “We the People” like SMEs and entrepreneurs, those with the best chances of generating the future jobs our grandchildren need. That regulatory credit risk aversion, layered on top of whatever risk aversion the bankers’ themselves can harbor, sounds as anathema as can be to the whole notion of the Land of the Free and the Home of the Brave.

Besides, the discrimination in access to bank credit that those risk weights produce, violates directly the spirit of the Equal Credit Opportunity Act (Regulation B). In that respect the committee should also ask the Consumer Financial Protection Bureau, CFPB, what it is doing about this.

With regulations, to favor banks lending to the “safer” past and present, over lending to the “riskier” future, is a clear violation of that holy social inter-generational bond that Edmund Burke spoke about.

To top it up, those risk weighted capital requirements do not serve one iota for making the banking system safer. All major bank crises result either from unexpected events or from excessive exposures to something erroneously perceived as safe, never ever because of excessive exposures to something ex ante perceived as risky.

PS. Elizabeth Warren, in as much as she classifies herself as a progressive, could also be interested in how these regulations decree inequality.

@PerKurowski ©

US, when will senators, like Elizabeth Warren, grill bank regulators with the same gusto they grill ban​k​sters?

Sir, I refer to Barney Jopson and Alistair Grays report on how John Stumpf was grilled in the Congress Wells Fargo clear misbehavior “Wells chief savaged in Congress over fake accounts” September 21.

Democratic senator Elizabeth Warren told Mr Stumpf: “Your definition of accountable is to push the blame to your low-level employees who don’t have the money for a fancy PR firm to defend themselves. It’s gutless leadership. The only way that Wall Street will change is if executives face jail time when they preside over massive frauds.”

Is senator Warren wrong? Absolutely not, but the grilling, if it does not also include a serious grilling of the bank regulators, is just another pushing all the blame on banks, in order to score cheap populist victories attacking “banksters”.

Here follows just few of the questions the US Senate's Banking Commission should pose regulators.

With your risk weighted capital requirements you allow banks to leverage more their equity, and the support we the society give them, with what is perceived as safe than with what is perceived as risky.

Do you not understand that favoring in this way The Sovereign, The Safe, The Past, The Rich, The Houses and The AAArisktocracy, impedes the fair access to bank credit of We the People, The Risky, The Future, The Poor, The Jobs and The Unrated? Who gave you the right to distort the allocation of bank credit to the real economy this way? Don't you understand with that you have de facto decreed inequality?

In all your regulations where have you defined the purpose of our banks? Does not John A Shedd saying: “A ship in harbor is safe, but that is not what ships are for” also apply to banks? Or is it really that you felt you did not need to do that in order to regulate banks?

Finally, for this first round of questions: Where did you get that funny idea behind all this that what is ex ante perceived as risky, is riskier to the banking system than what is perceived as safe, and that is therefore much likely to cause dangerous excessive bank exposures? Have you never heard of Voltaire’s “May God defend me from my friends [AAA rated]: I can defend myself from my enemies [BB- rated]”?

Don’t you see how these regulations helped to cause the crisis? Don’t you see how making it harder than usual for SMEs and entrepreneurs to access bank credit dooms us to stagnation?

By the way, before you go, where do you think we would we be if the credit rating agencies had, so luckily, not fouled up so fast?

@PerKurowski ©

Senator Elizabeth Warren, what about the staggering bad bank regulations that came out of the Basel Committee?

Sir, Patrick Jenkins writes: “Today, Mr Stumpf will face an inquisition at the Senate banking committee. It promises to be a hostile experience — no-nonsense committee member Elizabeth Warren is not known for her love of the banking sector and has already talked of Wells’ “staggering fraud”. “Wells Fargo chief ’s high noon is Senate committee grilling” September 20.

I’ve got no problem with any “grilling” of bankers, give it to them! But, Senator Warren, in all fairness, do not turn it all into another simpleton Bank-Bashing fair, We the People need it to be much more. If anything, look at how the bank regulators set up all the incentives for bankers to do wrong.

Why on earth should we expect bankers to be saints and resist the temptations? Aren’t they supposed to maximize their risk adjusted returns on equity?

What am I talking about? THIS

http://subprimeregulations.blogspot.com/2016/09/if-ever-allowed-following-would-be-my.html

PS. And Senator Warren, why would you agree with those who decreed inequality?

http://subprimeregulations.blogspot.com/2016/03/decreed-inequality.htm

@PerKurowski ©

When the Senate banking committee of the US, "the Home of the Brave" has hearing on Basel rules, let’s pray “The Risky” get some voice.

Sir, Shahien Nasiripour gives a good account of how “Banks attack Fed’s plans on Basel III accord” in order to defend their interests. November 14. My, how much voice the banking community has when compared to by those most negatively affected by Basel rules, II or III. 

Basel rules determine that banks can lend to those considered not risky, “The Infallibles”, holding much less capital than when lending to those considered “The Risky”’, like unrated small businesses and entrepreneurs. 

That of course translates into to banks being able to earn a much higher expected risk-adjusted return on equity when lending to “The Infallible” than when lending to “The Risky”. And that results in an odious and dangerous regulatory discrimination against those already being naturally discriminated against by the banks, being charged higher interest and receiving smaller loans. 

Nasiripour refers to the US Senate banking committee hearings on the proposed Basel rules, and I just hope that in "the Home of the Brave” “The Risky” will also get some voice. But, seeing for instance how a Financial Times over many years has shown absolutely no interest in that issue, I can’t say I am harboring any major hopes.

Are capital and liquidity rules for the banks out of the domain of the US Congress?

Sir in “Tsunami of regulation batters banks”, May 21, Brooke Masters reports “The Basel Committee on Banking Supervision is aiming to adopt new capital and liquidity rules by the end of the year.”

Given that the current capital rules, which unjustifiably favors the good credit risk ratings already favored by the markets, created the stampede after triple-A rated securities that detonated the current financial crisis, this must surely be one of the most important part of the financial regulatory reform.

Can then anyone explain to me why the Basel Committee is not mentioned even once in the 1336 pages long reform bill presented to the US Senate or in the 1776 pages long H.R. 4173 financial regulatory Act approved by the House of Representatives?