The corrective glasses prescribed to bankers by their regulators, distorts even perfect credit risk perceptions

Sir, Gillian Tett writes: “If you want to see what can happen when a government tries to prop up stock and land prices, Tokyo’s story is sobering. It shows that not only do interventions carry a financial cost (since they rarely work for long), but that they can be a lasting drag on investor psychology.”, “China risks repeating the errors of Japan” September 4.

Well said, but let me use this same construct for what Ms. Tett seemingly finds too hard to understand: “If you want to see what can happen when regulators tries to prop up bank lending to what is perceived as safe, the story of the recent financial crisis is sobering. It shows that not only do interventions carry a financial cost (since they rarely work for long), but that they can be a lasting drag on investor psychology.”

Sir, in my quest of finding the words able to explain the huge regulatory mistake to you and your journalists, I today venture the following:

Bankers look at perceived credit risks, like for instance credit ratings. What regulators should therefore hope for, is that those credit risks are correctly perceived, and that the bankers know how to manage these.

Instead overly anxious regulators imposed risk-weighted capital requirements, which forces the bankers to wear corrective glasses that makes them perceive much safer the safe and much riskier the risky. And so now, even when credit perceptions are absolutely correct, these will still distort.

@PerKurowski

Was the USA, the Home of the Brave, built based on risk-avoidance?

Sir, Professor Glenn Hubbard presents “A conservative growth agenda for the US economy” July 18. It includes primarily “getting or fiscal house in order and reforming the tax code” the latter because it “discourages work and entrepreneurship… and distorts the allocation of capital.” 

I have no problem with that, but how come no conservative (nor progressive) growth agenda includes getting rid, immediately, of those capital requirements for banks based on perceived risk and which discriminate so odiously discriminate in favor of what is perceived as absolutely not risky (which includes government) and against those perceived as risky, like the small businesses and the entrepreneurs? If anything is distorting bank credit allocation that´s it. Frankly, Professor Hubbard, was the US, “the land of the brave” built based on risk-avoidance? I do not think so! 

In fact these bank regulations are as close to a virus that instills cowardness as can be… and, if I was part of a Homeland Security, I would definitely look into it… as it is an issue of national security.