To be able to make our banks safe, at no cost, is a dream that passionately blinds way too many, like the Financial Times.

Sir, with respect to Bank of England’s interest rate increase you explain it with “The decision had all the hallmarks of a committee that has decided that it will only be comfortable when rates are at a higher level that feels more natural”, and so sees what it wants to see, and so you argue “It is far better for central banks to be more clearly and dispassionately guided by the data” “A rate rise and a Bank of England false step” August 3.

Of course, except those for some special reasons need blissful blindness, it is better for most “to be more clearly and dispassionately guided by data”. 

But let me ask you Sir: What data, during the last decades have you seen that in any way shape or form could support the current pillar of bank regulations, namely that what is ex ante perceived as risky is more dangerous to our bank systems ex post, than what is perceived as safe? 

None? Might it then not be that you are also too passionate about hoping to make our banks safe at no cost, so as to understand the data, or the lack of it? Or are you perhaps so passionate you do not even want to see any data that contradicts it.

Yes, I am obsessive about the distortions in credit allocation that the risk weighted capital requirements for banks cause, but Sir, you are just equally, or even more, obsessive with ignoring it.

@PerKurowski

If you want accurate data on bank risks, you have to start by removing all the incentives for banks to misrepresent their data

Charles Taylor, a former chair of the supervision and implementation group of the Basel Committee on Banking Supervision writes: “big banks should always be able to paint an up-to-date, comprehensive picture of the risks they face… [But] management often seem not to care” “Banks’ approach to risk data is deeply inadequate” July 16.

Sir, if a big bank reported an increase risk in a category of assets, what would the regulators most likely response be? To “either restrict banks’ activities or boost their capital requirements”… even Charles Taylor dixit.

While, especially the large banks are more in the business of obtaining their highest risk adjusted returns on equity, not by traditional lending but by minimizing capital requirements, that will simply not happen. And to believe it could, is just further proof of how naïve the current bank regulators are.

Taylor writes: “One of the lessons of the 2008 financial crisis was that watchdogs need timely information for the system as a whole.” Nonsense! The prime lesson from that crisis is that the watchdogs have no idea about what they’re up to. Imagine, just for a starter, their risk weighted capital requirements are based on such crazy theorem that holds that what is perceived as risky is more dangerous to the bank system than what is perceived as safe.

Sir, just as an example, we are talking of a “watchdog” that thought it was ok for banks to leverage 62.5 times if only a human fallible credit rating agency had assigned an assets and AAA to AA rating.

The “watchdog” seems to invest a lot of hope in “the Legal Entity Identifier [will] make it easier to track specific buyers and sellers” Ok, but what are they supposed to do with that? Make the risk weighted capital requirements for banks portfolio variant? Good luck with that! But please remember, bankers can screw up the portfolio of their bank, while regulators could do the same with all banks, simultaneously.

Taylor writes: “By 2017, only three of the 30 “global systemically important banks” were up to snuff” And so the question that has t be made is, could those three not be the most able to game it all? Like Volkswagen gamed carbon emission tests?

What to do? Although the road there is full of dangers, the final destination must be one single capital requirement (10%-15%) against all assets. No more distortions! 

Sir, again, I am amazed on how FT can, at this late stage of the game, still buy in so much into what the so utterly inept Basel Committee regulators try to sell. 

@PerKurowski

There are those interested in some economic data being classified as “Data that shall not be observed”

Sir, Tim Harford, in view of the continuously increasing availability of data, discusses some tools that could be used by the science of economics. “Data impel economists to leave their armchairs” July 14.

Not a second too late. I have for years wondered in what “laboratory full of bubbling flasks, flashing consoles and glowing orbs” regulators could have come up with their theorem that states that what is ex ante perceived as risky, is more dangerous to bank systems than what is perceived as safe. With that under their arms they went out and imposed their risk weighted capital requirements on banks.

If some real data on that would now appear in a research paper, like on that which caused the 2007-08 crisis, what will all those who have with their silence reinforced that crazy theorem do? Act as any neo-inquisitor, and just burn that paper up?

PS. Here an aide memoire on that regulatory stupidity

@PerKurowski

When it comes to recklessness, the whizz-kids are small fry when compared to current bank regulators

Sir, Gillian Tett, referring to “the 2008 financial crisis writes: “Regulators were largely toothless because the whizz kids were creating financial instruments that straddled national borders, regulatory silos and outdated laws” “Cambridge Analytica scandal echoes the financial crisis” July 13.

Hold it there! If the regulators were “toothless”, what on earth were they doing regulating in the first place?

And, really, how much damage could reckless whizz kids have caused, if regulators had not, for instance allowed banks to leverage their capital with securities backed with mortgages to the subprime sector, 62.5 times, only because a human fallible credit rating agency had assigned that instrument an AAA to AA rating?

And what whizz kids have ever been involved with something as reckless as when regulators assigned a risk weight of 0% to sovereigns like Greece?

If we take this all to the issue of misuse of data, what are we to say about regulators who seem to keep a low profile on the fact that whatever data Cambridge Analytica laid there hands on, that was nothing when compared to the so much more extensive data social media, like Facebook, already possess. Could these regulators, in a Basel Committee for Data Supervision, really be crafting adequate policy responses that will not have serious “unexpected” consequences?

What if that data had now to be shared with governments, would that not make any autocrats’ “Big-Brother is Watching You” wet dreams come true?

@PerKurowski

Beware, the more you trust data, the more you have to be absolutely sure about how to interpret it, and about what to do with it.

Sir, John Thornhill writes: “In his Alan Turing Institute lecture, MIT professor Sandy Pentland outlined the massive gains that could result from trusted data… the explosion of such information would give us the capability to understand our world in far more detail than ever before”, “Trustworthy data will transform the world” March 6.

Indeed, but that also leads to other bigger dangers, not only because we might trust that trusted data too much, but also because we might not know how to interpret or what to do with that trusted data.

Like for instance the regulators with their current risk weighted capital requirements for banks. These establish that the riskier an asset is perceived the larger the capital a bank has to hold against it. Does that make sense? Absolutely not!

It is not if the perceived risk is correct, meaning the ex ante risk perceived ends up being the real ex post risk, that poses any major danger for our banking system. It is if the risk perceived is incorrect, that the real big dangers arise. And, of course, the safer an asset is perceived, and the more bankers trust that perception to be right, the longer and the faster it can travel down the dangerous lane of wrong perceived risks.

What detonated the most the 2007 crisis? The securities backed with mortgages to the subprime sector rated AAA by “trustworthy” credit rating agencies, in fact so trusted that the Basel Committee, with Basel II, allowed banks to leverage 62.5 times their equity with such “safe” assets.

@PerKurowski

Beware, data, even when in data trusts, can be exploited in very dangerous dumb ways.

Sir, John Thornhill writes: “A country’s ability to exploit data in safe and creative ways will increasingly determine its success. It is high time for institutional innovation to encourage the process...” “Data trusts can stimulate the digital economy” October 30

Indeed but if data is exploited erroneously that can also cause great tragedies.

For example, even though there must exist loads of data on what caused bank failures, the regulators used data about the failures of the borrowers; something which of course c'est pas la même chose.

That explains how they could risk-weigh that rated so safe as AAA, and which could therefore create excessive exposures that could endanger bank systems, with only 20%, while that rated so risky as below BB-, and which bankers do not like to touch with a ten feet pole got 150%.

As a result we got a crisis because banks held too many securities rated AAA and too high exposures to what was also assigned very low risk-weights like sovereigns, like Greece.

As a result millions of not rated SMEs and entrepreneurs, and who were risks weighted 100%, have had their credit applications denied, as banks cannot leverage their equity as much as with other alternatives.

Sir, I suspect that “The EU’s sweeping General Data Protection Regulation, which comes into force in May and will be adopted by Britain also [though it] imposes strict restrictions on data use, will probably not contain any language with respect to dumb data use.

@PerKurowski

Global supply chains should and will change, as robots and automation substitute more and more for cheap labor.

Sir, Shawn Donnan, referring to a recent report by the World Bank writes that a “report by World Bank economists yesterday highlights the fragile state of one historically important engine of global growth — trade” “Policy uncertainty threatens trade growth, says World Bank” February 22.

And he follows up with “One of the big consequences of the explosion in trade agreements in recent decades has been the emergence of global supply chains. Such chains are widely seen by economists to have made businesses more efficient and to have helped boost productivity”

Indeed, but certainly more than policy uncertainty, what could currently affect global supply chains, is that these were based on cheap labor, and more and more cheap labor is being substituted by even cheaper and cheaper robots and automation.

What amazes me is that it is almost impossible to find any statistics; from for instance the World Bank, IMF and OECD, on how many jobs have effectively been taken over by robots and automation, for instance the last year. That to me sure represents a big lacking of data required for projecting tomorrow. 

@PerKurowski

“What technology can do for your health”, besides very good things, might also include some very bad things

Sir, I refer to Gillian Tett’s “What technology can do for your health” October 3.

The only problem I have with the article is how she brushes over the problem of privacy: “To be sure there are issues of data privacy; and sometimes records get lost. But…”

In March 2000 I wrote an Op-Ed in Venezuela titled “Human genetics made inhuman” and in which I expressed concerns about how medical data could be used to make it more difficult for some to obtain health insurance.

That was before I really began to understand how data was so massively been put to use in so many aspects of our lives… and not always even correct data.

What would Gillian Tett say if one of her health record entrepreneurs, by means of an innocent mistake, entered a data that for instance hindered one of her children to enter a university that had decided that the expected longevity of students was good for its funding drives?

@PerKurowski

Any self-respecting serious buyer on the web will surely like to have her own pick-up drone.

Sir Tim Harford writes about “How delivery drones could transform the world” December 6, and I just have to wonder whether it might not as well be “pick-up drones” which could transform the world.

And I say this because, looking only at some of my family´s members, I have an inkling that any serious purchaser on the web who respects herself, would want to have her own drone… at least for the last mile… just in order to be free to buy from anyone… yes even from Walmart.

I can see all those big houses, next to their cars, having a stand for the latest shiny pick-up drone model… and which, as a complementary service, has a built in camera so as to be able to better see what the neighbor is buying… and send that data to the local data-purchasing agent.