Raghuram Rajan, your own bank regulations are more important to mobilize development funds in India than the World Bank.

Sir, I refer to Victor Mallet’s and James Crabtree’s “Rajan issues call for World Bank and IMF reforms” October 8.

It states that Raghuram Rajan, Indian central bank governor and former chief economist of the International Monetary Fund, gave the example of financial regulations with global reach that would typically be discussed among representatives of advanced economies behind closed doors and presented only at a late stage to those of emerging markets. “Eventually what emerges is a compromise among the advanced countries, even though we’ve been at the table when the final vote is there,” Rajan said.

Not so! Technocratic members of a small mutual admiration club might discuss those financial regulations, but there is nothing to stop Raghuram Rajan to question those regulations openly; and there is nothing forcing India to accept those regulations, except of course that of their own local regulators also wanting to be seen as loyal members of such an exclusive and sophisticated club.

For instance, at the High-level Dialogue on Financing for Developing at the United Nations, New York, October 2007, I questioned bank regulations coming out of Basel, based on the fact that developing countries cannot afford to have regulations that block them from the risk-taking needed in order to develop. And nowhere did I see India or any other developing country lending support to my arguments.

Of course I agree with Rajan supporting the request to increase the capital of the International Bank for Reconstruction and Development, but, for India, and for the financial resources India could mobilize for its development, he has much more important thinks to do.

He could request from the World Bank, as the world’s premier development bank, a clear opinion of how regulatory risk aversion, as currently expressed in risk weighted capital requirements for banks, harmonizes with the needs of developing countries… and even with the needs of developed countries, who also need economies moving forward in order not to stall and fall.

The World Bank has previously expressed some concerns. In its Global Development Finance 2003, in relation to the minimum capital requirements of the Basel II proposals, it stated that these “include the likelihood of increased costs of capital to emerging market economies; and an “unleveling” of the playing fields for domestic banking in favor of international banks active in developing countries”. But why has WB kept silence on it thereafter?

Raghuram Rajan, those risk weighted capital requirements odiously discriminate against the possibilities of “The Risky” to access bank credit in a fair way and, expressed in terms of trade, are just vulgar tariffs distorting the allocation of capital around the world… especially in the emerging and development countries. Do something about that! For a start don’t follow the Basel Committee; it has in fact no idea about what it is doing.

It has deemed the risky SMEs and entrepreneurs, those risky tough ones we must need to get going when the going gets tough, to be the untouchables of the banking sector.

PS. The document I presented at the UN was also published in “The Icfai University Journal of Banking Law” of India in October 2008.

@PerKurowski ©  J

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.

Zapatero is just another Rolly Polly Doll

Sir we read in you interview of Spanish leader José Luis Rodríguez Zapatero, “A legacy in limbo” April 12, that he is “ready to be judged on plans to take control of public finances”. Are they not amazing these Rolly Polly Dolls when they with so much bravura announce they are willing to be held accountable on how they get us out of the mess they helped to get us into? They do all sound and act like financial regulators.

We better make hot fashionable before it gets too hot

Sir, Victor Mallet touches upon a very touchy subject in his “How to curb Asia’s towering energy demand” May 17, namely the extremely vicious circle of the increased use of much energy consuming air-conditioning in times of global warming. Not only do we have to construct better buildings, like those in the old days where you could open the window, but we must also fight determinately fight the status and glamour of the cold. I know what I am talking about. Anytime I had to go in Venezuela from Caracas to the much warmer city of Maracaibo I had to pack an extra sweater to survive the cold of their offices where number of BTUs per employed carry an even bigger social significance that what the number of horse powers under the bonnet of his Thunderbird could have for an American. In Maracaibo they will not rest in their hospitality efforts, trying to make you feel comfortable, until they see frost in your eyebrows. The world urgently needs some cultural icons, perhaps Bono, to be seen showing up in offices sweating a bit, and liking it, and making hot fashionable, before it gets too hot.