How much should we claw-back from inept bank regulators who neglected their fiduciary responsibilities?G

Sir, Gillian Tett writes: “If bankers are going to defend their craft, let alone their high pay, they have to start truly sharing risks with shareholders and taxpayers…If clawbacks had been in place a decade ago, those scandals at Deutsche and Wells might never have erupted in the first place.” “Clawbacks emerge as a vital weapon in finance” September 30.

That applies to regulators too.

The Basel Committee neglected to define the purpose of the banks before regulating these and so came up with the risk weighted capital requirements for banks that have so distorted the allocation of bank credit to the real economy.

The Basel Committee also neglected to do the empirical studies to determine what cause bank crises and so placed much higher risk weights on what was perceived as safe, when actually all crises have resulted from unexpected events like natural disasters, illegal behavior like lending to affiliates, or excessive exposures to what was erroneously perceived as very safe.

The results? A banking crisis because of excessive exposures against too little capital to what was perceived, decreed or concocted as safe; and economic stagnation resulting from too little financing to the “risky” SMEs and entrepreneurs.

Is that not an amazing fiduciary negligence that merits, as a minimum minimorum. some claw-backs?

PS. And all those journalists and famed columnists that so blithely ignored the regulatory faults when denounced over and over again, should they go scot-free?

@PerKurowski ©

There’s also a need for a profound change in the culture of regulations

Sir, Sir Mervyn King, the Bank of England Governor lashes out with “From excessive compensation to deceitful manipulation of one of the most important rates, we can see we need a change in the culture of the industry”. Sorry, as a regulator he is not really one to speak about the need for a culture change.

Only because of the capital requirements based on perceived risks, the regulators caused the banks to charge hundred and so basic points in higher interest to those perceived as “risky”, like small businesses and entrepreneurs, and hundred and so basic points in lower interest to those perceived as not risky, like infallible sovereigns. If that is not manipulation of the most important rates, I do not know what that is.

And besides, most of the excessive compensations to bankers arose from the fact that regulators freed the bankers from having to compensate shareholders by requiring so little bank equity. By the way, on that issue, it might be better for Sir Mervyn King to lie low, because there could be calls for claw-backs on all types of compensation.