What would an old days’ bank failure look like with current deposit guarantees and capital requirements for banks?

Sir, John Kay writes about the topic of “other people´s money and one’s own”, and about the power that is “acquired with the savings of the… public” in order to speculate, “Boom, bust and broke trust mark the ages of finance” September 9.

Yes but he ignores those many who manage the relations between “other people´s money and one’s own”, like bank regulators.

Had not regulators allowed banks to leverage their equity and the support given implicitly by taxpayers 60 times or more when lending to sovereigns or the AAArisktocracy, the relations between other people’s money and bank’s own money would have been totally different. For instance when have one seen a hedge fund been able to leverage more than 10 to 1?

Try to imagine the size of an Overend Gurney bank failure in 1866, with current deposit guarantees, and current portfolio-invariant-credit-risk capital requirements for banks? Holy moly!

@PerKurowski

Would a private bank depositor insurer allowed the European banks to do what they did? No? So?

Sir, Wolfgang Münchau writes “It doesn’t make much sense but I am a Eurofanatic” May 20.

It makes me truly wonder why if so he does not want to put forward the fact that the current problems of Europe, and especially of the Eurozone, were not caused by Europe or the Euro, but essentially by faulty bank regulations.

I would just ask Münchau the following: “Do you believe a private bank deposit insurer would have ever permitted banks to lend to Greece holding only 1.6 percent in capital, something which implies mindboggling authorized 62.5 to 1 leverage and as the Basel Committee did?” I am sure his answer would be definite "No way José!" So?

I do like Europe, I do support Europe, but what I do not like is how it is being run by what seems to be a quite lousy and conceited bureaucracy. Perhaps if that changed, Münchau could feel that being a eurofanatic made much more sense.

PS. Just as a reference I include a link to my version of “Who did the eurozone in?”