Sometimes, quite often, a government’s help costs you more than it is worth

Sir, Sarah Gordon with respect to the possible consequences of Brexit for small business writes: “The British government has failed to provide the support that is needed” “Aloof state abandons UK small businesses to their Brexit fate” October 18.

Since any government assistance way too often goes hand in hand with having to waste your time, or your money paying their crony consultants for a lot of tasks not necessarily relevant to the problem at hand, I’m not really sure small businesses are here net losers as a result of that lack of support.

Besides what’s to be expected from a government that allows banks to hold much less capital when lending to the sovereign and financing house purchases, than when lending to small businesses?

@PerKurowski

When will supposedly sophisticated papers like Financial Times wake up to the horrors of current bank regulations?

Sir, Ray Soifer writes: “No wonder banks’ shares generally trade at a discount to their stated book value. No one really knows what their true net asset value is — too often, not even the management.” “Picture of risks in banks’ portfolios is still fuzzy” January 17.

Of course! How could it be otherwise? Banks are currently most certainly paying more for consultants to understand their regulator’s risk/required capital management, than what they pay for the risk management of their own portfolio. Because, how is one to understand risks in banks’ portfolios when the risk weights used by regulators are, to top it up, portfolio invariant, since to do these portfolio variant would be, as they confess, too difficult for them to do?

Could it be because when something is too out of line, it is sort of easier to attribute an intelligent motive to it? Sir, again it all reminds me so much of Chance gardener a.k.a. Chauncy Gardiner

@PerKurowski

Shame on you bank consultants! For a quick buck, you sacrifice the future of our children and grandchildren

Sir, Laura Noonan reports: “Post-crisis consultancy spending soars to $200bn”, December 7.

Clearly that must be the cause why otherwise brilliant consultants, like those of the high powered consultancy firm McKinsey & Company, keep absolutely mum on the fact that regulators, with their risk weighted capital requirements for banks, are dangerously distorting the allocation of bank credit to the real economy.

With it, banks no longer finance the “riskier” future but only keep to refinancing the “safer” present and past.

With it, banks finance basements where jobless kids can live with their parents, but not the SMEs and entrepreneurs who could create the jobs the kids need in order for them to have a chance to become responsible parents too.

Since those bank consultants must also have children and grandchildren to who they owe great responsibility, I can only say: Shame on you!

@PerKurowski

Bank regulators have set their highest bank capital requirements for what poses the least dangerous tail risks

Sir, I refer to your “World economy of so-so growth and fat tailed risk” January 4, and your reporters “Unlikely suspects are in the wings for 2016” of January 2.

The latter states: “Some risks are quotidian. Will a company struggle to generate cash flow, or will a particular asset fall out of vogue. Then there are outcomes that exist in the narrow, far reaches of statistical probability distributions, known as “tail-risks”. A hefty blow to investments is usually the result when such shocks occur.”

And with respect to current bank capital requirements, those that are supposed help cover for unexpected losses I have two questions for your reporters.

First, what can cause more unexpected losses, quotidian risks like credit risks, or the kind of events that they exemplify as some possible dangerous tail risks?

Second, in the case of credit risks, what has the capacity to produce the most sizable unexpected losses, what is perceived as safe or what is perceived as risky?

The correct answer to those questions should indicate the absurdity of setting the highest capital requirements for that that in terms of a quotidian credit risk is perceived as risky.

Think of it. The risk weight for a private sector asset rated below BB- was set at 150 percent, while that of an AAA to AA rated was only 20 percent. Is below BB- rated, something which scares away any risk adverse banker, really more dangerous to the banks than what is AAA rated? 

Sir, how long will your reporters ignore this sad truth? Is there a tail risk they personally have to be afraid of?

Laura Noonan in “EU board budgets for 10 bank failures” December 4, writes that the Single Resolution Board is seeking €40m in accounting advice, economic and financial valuation services and legal advice, to be used in the resolution of struggling Eurozone banks from 2016 to 2020.

Sir, have any of the possible big shot candidates for that consultancy ever informed bank regulators that their capital requirements make no sense? Sorry, just asking.

@PerKurowski ©

Real stress tests on banks are not performed, since these would evidence the failure of regulations.

Sir, Gillian Tett writes “One reason the banks got into such trouble before 2007 was that they had all learnt to game the regulatory system in a similar way”, “Stress tests are predictable act of public theatre” Marc 6.

That’s not so. There was no reason to game regulations that explicitly allowed banks to hold little or no equity against exposures to sovereigns (like Greece), exposures to AAA rated (like the securities collateralized with mortgages to the subprime sector) or to real estate (Spain).

But the current stress tests are indeed useless spectacles.

Societies give their banks a lot of supports. And obviously that is not only so that banks will repay deposits, since for that a storage center for matrasses containing cash would be more efficient. We support banks because, one way or another, we expect banks to support our economies. And so in this respect any real stress test would have to analyze whether banks were performing and under stress would be able to perform with what is expected of them… like continuously giving small businesses and entrepreneurs, reasonable fair access to bank credit.

Those real stress tests are not performed because they simply would put in evidence the total failure of current bank regulations. If banks are not performing now... how on earth will they perform if subjected to stress?

PS. Gillian Tett mentions that “the same consultants, now offering advice about stress tests”, aided banks gaming before 2007. If so, those consultants, who should be named, do represent a systemic risk, the Systemic Important Consulting Groups. Those SICGs and might be even more part of the Systemic Important Financial Institutions, the SIFIs than anyone of the Too-Big-To-Fail banks.