President Trump. Bankers have already way too much representation. Give the much-needed “risky” borrowers more voice

Sir, I refer to Sam Fleming’s and Alistair Gray’s “Bank’s president is latest alumnus to be tapped for a senior White House job” December 10.

Current bank regulations overtly favor banks earning much higher expected risk adjusted returns on equity when lending to something perceived as safe, than when lending to something perceived as risky, like to SMEs and entrepreneurs.

That of course delights bankers but the other side of the coin, is that the real economy is not getting its credit needs efficiently satisfied.

Therefore Trump would do a lot better assuring the perspective of “borrowers” is more represented in his government, than the clearly overrepresented perspective of bank lenders.

PS. I would love for Trump to convene the regulators and ask them a set of questions that they refuse to answer to someone as powerless as me… that is unless perhaps I threaten them with going on a hunger-strike.

@PerKurowski

Europe, if you do not remove current risk weighted capital requirements for banks, no stimulus will really help.

Sir, Reza Moghadam from Morgan Stanley writes: ECB should switch from buying sovereign bonds to funding the removal of troubled assets from European banks…[that] would do more to alleviate the constraints on economic recovery than sovereign bond purchases ever could. “How to redirect easy money and encourage banks to lend”, December 6.

Of course that would help, but only for a while. If you do not remove the risk weighted capital requirements for banks, those which distort the allocation of bank credit to the real economy, and which therefore impede any stimulus like QE or a European type Tarp to reach were it can do the most good, you’ll soon be back on the cliff, albeit higher up.

Sir, the lower the capital requirement, the higher the leverage of equity, the higher the expected risk adjusted return on bank equity be. Therefore you cannot be so naïve as to expect a banker like Moghadam to say one world that would imply higher capital requirements for anything. In fact, by allowing banks to earn the highest risk adjusted returns on what is perceived as safe, the Basel Committee has made the bankers’ wet dreams come true.

When will you invite someone, like me, who speaks out for the access to bank credit of the “risky” SMEs and entrepreneurs? Or are these beggars for opportunities, those who could help open new gateways to the future, just not glamorous enough for you?

@PerKurowski

Tim Harford, lack of the limited diversity is bad, but much worse is groupthink within mutual admiration clubs.

Sir, Tim Hartford argues that one argument in favor of diversity is “to engage with people who may see the world differently because of their race, nationality, sexuality, disability or gender.” “Economics: a discipline in need of diversity” November 12.

That is a way too restricted view on the importance of diversity. As an Executive Director of the World Bank, back in 2002-04, I often argued with my colleagues that if by lottery we would get rid of two us with so much alike backgrounds, substituting the eliminated with a nurse and a plumber, we would not only have a more knowledgeable Board but, more importantly, a much wiser one. Not surprisingly there was a general lack of enthusiasm in the response to this line of argument.

Likewise, if bank regulators had beside those with banking experience included some with borrowing experience within their ranks, those who could attest to the difficulties they already faced accessing bank credit when perceived as risky (even if all these were white men) we would never have had to suffer the sheer idiocy of the current risk weighted capital requirements for banks.

Sir, so to stuff mutual admiration clubs that can easily fall trap to groupthink with those who meet the current limited meanings of diversity, will result in much less than what is really needed.

@PerKurowski

“Trust me, I am a bank regulator” is not enough either. They do not treat all of their customers fairly.

Sir, John Kay describes well the difficulties of financial advisors to handle conflicts of interest in “Trust me I am a financial advisor’ is not enough” July 9. But, as I suspect you know by now, I would also hold that the “Trust me I am a bank regulator” is not enough either.

For instance what would bank regulators have answered if Sir Henry McCardie, the judge, a century ago, had argued the following?

“I know you have depositors’, taxpayers’ and governments’ best interests at heart when you make the capital banks need to hold a function of risk-weights… and I commend you for that…though I have some reservation about why these are lower for those perceived as absolutely safe, as from what I have seen it is always excessive bank exposures to these which have created havoc.

But, more important, why do you think you have no responsibility to all the borrowers, to the real economy, and to our job seekers, and think you can distort the allocation of bank credit at your will? Who told you not to care about those interests? Is this how you treat all your customers fairly?”