IMF, where’s the regulators’ discipline when needed to stop the procyclical risk weighted capital requirements for banks?

Sir, Chris Giles writes that IMF’s Christine Lagarde warning about “70 per cent of the global economy to experience a slowdown in growth… acknowledged that budgetary discipline in good times was difficult for finance ministers to achieve, but necessary to create “fiscal space to act in bad times”. “IMF Lagarde highlights risks to global economy” April 3.

Times are good, lesser the perceived risks; less the capital must banks hold; even though it is a good time to raise bank capital.

Times are bad, higher the perceived risks; higher the capital must banks hold; even though it is a bad time to raise bank capital.

But are regulators doing something to diminish this regulatory pro-cyclicality? No, or absolutely not enough. Why? Because doing so would require to admit that their risk weighted bank capital requirements are based on the nonsense that what is perceived as risky, when place on banks’ balance sheets, is more dangerous to the bank system than what is perceived as safe.

Sir, that slow down Ms. Lagarde speaks of is much the result of the obese growth that results from excessive exposures to what is perceived as safe. Muscular, sustainable growth requires, by definition, a lot of risk taking.

God make us daring!

@PerKurowski

If you finance “safe” consumption more than “risky” production, growth will come to a standstill.

John Dizard writes: “What if global income growth, or even national income growth, cannot cover the cost of servicing capital? Then the capital market machinery would have to shift into generating losses rather than returns.” “Bondholders face greater likelihood of haircuts as system goes into reverse” January 26.

Absolutely! When regulators decided that banks could hold less capital against the “safer” present than against the “riskier future”; meaning they could leverage more with the safer present than with the riskier future; meaning they would be able to earn higher expected risk adjusted returns on equity when financing the safer present than the riskier future, they ordained that to happen.

Basel II assigned a risk weight of 35% to residential mortgages, which on an 8% base capital signified a capital requirement of 2.8%, which signified an allowed leverage of 35.7 times.

Basel II assigned a risk weight of 100% to unrated entrepreneurs, which on an 8% base capital signified a capital requirement of 2.8%, which signified an allowed leverage of 12.5 times.

That allows banks to earn higher risk adjusted returns on equity financing residential mortgages than giving loans to entrepreneurs.

The consequence? Many will sit in their houses without the jobs needed to service the mortgages or pay the utilities.

@PerKurowski

More than from corporate governance failures Britain, and the Western World, suffer a hubristic regulatory failure.

Sir, Martin Wolf, on the issue of: “why [UK] productivity growth is so pervasively low” writes: “One reason could be the exceptionally weak investment, by international standards. This would be another corporate governance failure. Rectifying this disaster is the UK’s most important policy challenge, far more so than Brexit. The government should finance a high-level effort aimed at working out what has gone wrong, why and what (if anything) to do about it. The country’s very future is at stake.” “Britain’s dismal productivity is its biggest policy challenge” April 7.

What corporate governance failure? Most of the responsibility for weak productivity growth can be traced directly to the risk–weighted capital requirements for banks concocted by Andy Haldane and his regulatory buddies at the Basel Committee for Banking Supervision.

Anyone who has walked on main-street and seen first hand how difficult it has always been for “risky” SMEs and entrepreneurs, without bankable collateral, to access bank credit, should have understood that to burden these even more by the fact they would also generate higher capital requirements for the banks than what “the safe” borrowers do, would affect productivity and economic growth.

Getting rid of these regulations that have effectively hindered millions of SMEs and entrepreneurs to access bank loan opportunities they would otherwise have been able to access, must of curse be the number one priority, not only in Britain but in the whole western world.

There will be much written in the future about how on earth regulators could come up with such daft regulations and how little the so much informed and so much connected world, questioned these.

On April 3, in FT, Anjana Ahuja, in reference to Robert Hare’s 1993 “Without Conscience: The Disturbing World of the Psychopaths Among Us,” wrote: “Uncertainty is unsettling and certainty is alluring. Beware anyone who offers the latter with charisma, especially at this jittery juncture. Arm yourself against the charlatans…not only criminal psychopaths but the white-collar kind — who overstate their abilities, denigrate subordinates, have a tenuous grip on truth and seek greater power with shrinking oversight.”

That convinced me that we should subject those technocrats taking decisions on such vital aspects as bank regulations, to a full psychological assessment before we allow them to proceed. We do mandate such tests for airplane pilots, even if they are engaged in much less dangerous activities for the world.

Frankly we can’t afford the luxury of having regulators so dumb that they set the capital banks should have in order to meet unexpected events, like ex ante perceived as very safe borrowers turning out ex post being very risky, based on the expected credit risks bankers already clear for.

And its not like I have not said it before. Here for instance on Martin Wolf's Economist Forum in 2009

@PerKurowski

Are we better off with robots able to compete with berry pickers than with those able to compete with CEOs?

Sir, Lawrence Summers hits out at the possibility of taxing robots and writes: “Surely it would be better for society to instead enjoy the extra output and establish suitable taxes and transfers to protect displaced workers? It is hard to see why shrinking the pie, rather than enlarging it as much as possible and then redistributing, is the right way forward.”, “Leave robots tax-free to assemble a profitable future” March 6.

Right on... BUT! On the first: why should “less-fortunate workers” be displaced only because they are burdened with for instance payroll taxes or minimum wages, while robots are not, and so that their owner/bosses can earn more?

On the second: why should we have those robots that compete at the lower end of the labor market, be the main pie enlargers? If robots were taxed, then they would have to be much more efficient, and we would perhaps have a better chance of getting the 1st class robots we really want our grandchildren to have at their disposal.

I mean does Professor Summers really feel that the economy has been enlarged when, instead of being able to exchange some words at the supermarket with a human cashier, we have to settle with an automated cashier giving us instructions with an automated voice, and turning us into their submissive servants?

PS. Bill Gates, who is far from being the first to speak about taxing robots, wants us to use those revenues to enlarge the franchise value of the redistribution profiteers. Other of us want to use these instead to partially fund a Universal Basic Income, which could be part of the tools needed to create decent and worthy conditions, for all those unemployments robots and automation cause. But, last time I read it, Professor Summers was on the side of those considering we cannot afford a UBI plan.

PS. When Professor Summers writes, “Why pick on robots?” I am sure he knows we are not only picking on robots but on any artificial substitute for humans efforts that has been inhumanly favored.

PS. Are American workers really competing against Chinese and Mexican workers, or against American, Chinese and Mexican robots?

@PerKurowski

Why are experts like Martin Wolf so silent on the immoral and utterly stupid facets of current bank regulations?

Sir, Martin Wolf questions the UK government’s “moral choices for a country forced to share out losses imposed by a massive financial crisis and weak subsequent growth [because] the government has decided to give greater priority to the old than to the young, to pensioners than families with children and to the better off than to the relatively worse off” “May’s policies make a mockery of her rhetoric” February 10.

But, when I question the intelligence and the morality of current bank regulations, Wolf ignores it. So Sir, here we go again, for the umpteenth time!

The risk weighted capital requirements for banks, caused a massive financial crisis by giving too large incentives for banks to create excessive bank exposures to what was supposed to be safe, like AAA rated securities and Greece; and with incentives that hinder banks from taking sufficient risks on the future, like lending to “risky” SMEs and entrepreneurs, causes weak growth and lack of increased productivity.

That clearly immorally favors the well-off over those poor wanting and needing credit opportunities; just as it immorally favors banks financing the safer past and present, than the riskier future the young need to be financed.

It is also I would say almost immorally stupid; since major bank crises always result from unexpected events, criminal behavior or excessive exposures to what was erroneously perceived or decreed as safe, and never ever from excessive exposures to something perceived as risky when placed on banks’ balance sheets.

Basel I assigned a risk weight of 0% to the Sovereign and one of 100% to us We the People; and it would seem Wolf is unable to grasp the runaway statism of that.

Basel II assigned a risk weight of 20% to what was AAA to AA rated and one of 150% to what is below BB-; and it would seem Wolf is unable to grasp the lunacy of that.

@PerKurowski

Current central bankers are just as lost as Greenspan and friends were lost before 2008, for exactly the same reason

Sir, Sebastian Mallaby when discussing the “alarming froth” in asset prices like shares, bonds and houses, due to “extraordinarily loose monetary policy”, but yet producing “low growth and low inflation” writes: “A … troubling echo concerns the role of regulation. If financiers seem to be taking too much risk, today’s doctrine holds that regulation should restrain them.” “Bubbly finance and low inflation cause alarm” October 8.

NO! NO! NO! Today’s regulations hold that banks should be taking on too much safety. Banks are not allowed to build up dangerous exposures to what is perceived as “risky”, like for example the below BB- rated, which has been assigned a risk weight of 150%; but banks are sure allowed to leverage immensely their capital, and the support they receive from society, with assets rated AAA to AA, risk weighted a mere 20%.

And, if the banks are big and “sophisticated” enough, then they are even allowed to use their own risk models even if, by definition, banks are always interested in minimizing their capital requirements so as to allow them to maximize their expected returns on equity.

There must be something in the air that stops expert central bankers from reaching out to their inner common sense and be able to understand how loony current bank regulations are.

The risk-weighting completely distort the allocation of bank credit to the real economy, making banks ignore their vital role in financing the “riskier” future, and having them to concentrate solely in refinancing the “safer” past. That dooms the world to gloom and doom or as they prefer to call it, to secular stagnation.

And all for nothing! Major bank crises never ever result from excessive exposures to what is ex ante perceived as risky; these always result from unexpected events or from excessive exposures to what was ex ante erroneously thought to be very safe.

@PerKurowski ©

“Progressives” can promote fairness and growth by stopping bank regulator’s despicable discrimination against “risky”

Sir, Lawrence Summers writes: “Often in economics there are trade-offs. But not always. We can and must promote both fairness and growth. “The progressive case for championing pro-growth policies” August 8.

And for that he recommends: “more demand for the product of business. This is the core of the case for policy approaches to raising public investment, increasing workers’ purchasing power and promoting competitiveness”

Again Summers seems to ignore completely what one could believe would be a great cause for “progressives”, namely to combat how the last decades those who are perceived as risky, when compared to those perceived as “safe”, have had their access to credit made much more difficult by the risk weighted capital requirements for banks

Who are “the risky”? In terms of growth, the all important SMEs and entrepreneurs, those risk weighted 100% (and more).

Who are “the risky”? In terms of fairness, the weaker, the poorer, the not yet up there, the ones praying for fair opportunities.

So how can we explain that progressives do not give much attention to these regulations that so odiously discriminate in favor of the AAArisktocracy and against "the risky"? Perhaps because these also include the risk-weight of 0% for the government, and most progressives are foremost statist.

Perhaps because it is not in the nature of progressives to understand, and much less admit, that regulators can get it so wrong.

@PerKurowski ©

The best pension security you can get is to have grandchildren who love you and who work in a not too bad economy.

Sir, John Plender valiantly discusses one of the most difficult and delicate current problems, namely if tomorrows pensioners will even come close to collect on their expectations, “Uncertainty clouds the outlook for pension funds” May 16.

And looking at the problem solely from the perspective of the current manipulated low rates he already concludes: “What we can safely posit is that an exit from the low or negative rates that cause the blight, however desirable for the pensions system, is unlikely to be a smooth and painless affair”

Add to that longer life expectancies, more robots - less job opportunities, already extremely high indebtedness, climate change, demographic changes, existing inequality and quite possibly much weaker economies… and we start getting the feeling that the only variables capable of balancing the disastrous pension outlooks… are those variables we do not even want to think of… down the line of epidemics and wars.

But how could it not be?

Never ever before has a generation consumed as much of any existing borrowing capacity to sustain its own consumption… so of course little is left for retirement.

And to top it up, we have had to suffer the risk aversion of manipulating regulators who do not want our banks to take the risks that building a healthy future economy needs.

When in the past I often protested the implicit promises of sustainable high rates of return of pension fund plans, I remember always ending up with that the best pension plan was to have children that loved you and who worked in an economy that was not too bad. And I have found no reason to change that opinion… much the contrary… although I now include loving grandchildren too J

PS. By coincidence I posted this opinion on pension funds and social security exactly 10 years ago (on my 56th birthday)

Just thinking of all growth opportunities that have irreversibly been lost the last 12 years, makes you want to cry.

Sir, the regulatory credit-risk aversion that is present in the current risk weighted capital requirements for bank started back in 1988 with Basel I, but it really took on huge force with Basel II of June 2004, when even the private sector was split up into different risk baskets.

The risk weighing allowed banks to leverage more with assets perceived, decreed or concocted as safe than with “risky” assets. And so bankers were able to realize their wet dreams of making their largest risk-adjusted returns on equity on the safe, which therefore allowed them to be able to abandon the “risky”

Now, 12 years later, we should cry for all those opportunities of SMEs and entrepreneurs gaining access to credit, and helping move our economies forward, that have irreversibly been lost. Damn the Basel Committee and its regulations! Now our banks do not finance the risky future but only refinance the safer past. Now we are sitting here waiting for the next safe-haven to become dangerously overpopulated.

But what makes me want to cry the most is that the regulatory blocking of initiatives that would be opening up new activities and job opportunities for our youth is not even been discussed.

And to top it up, had all the credit opportunities that would normally have been awarded been awarded, banks would not be any riskier, because lending to the “risky” is not the stuff major bank crises are made off. If you know how connect dots, try doing so between what banks were allowed to hold against little capital, because it was “safe”, and what caused the 2007-08 crisis.

Yes, short-term bank returns on equity, as a consequence of not allowing banks to leverage so much with “safe” assets would have suffered but, long-term, even banks stand to benefit from a strong economy.

Stephen Foley, writing about a conference at the Milken Institute tells of “concerns [about] the US public pension funds… in an era of weaker demand, anaemic business investment and low growth, yet the average fund is still forecasting a 7.6 per cent annual return on investment portfolios, basically the same returns as the past 25 years.” And, as if lack of expertise was the problem: “Vicki Fuller, chief investment officer of the New York State Common Retirement Fund, said public funds tended not to have the expertise to pick good private equity investments.” “Financial elite hum a sunny tune as signs of disruption gather” May 10.

A financial elite that does not understand the destructive distortion in the allocation of bank credit to the real economy the credit risk weighing produces, is sincerely not a financial elite to write home about.

Here a link to an aide memoire about the idiocies of current bank regulation

@PerKurowski ©

Risk adverse bank regulation, anathema to a “Home of the Brave”, has imposed a curse of slow growth on the US economy

Sir, you write: “With every month that passes, the decision of the Fed’s open market committee (FOMC) to raise interest rates in December looks more like a mistake. The US economy clearly decelerated around the turn of the year” “The curse of slow growth afflicts the US economy” April 30.

That increase you refer to is was from 0.25% to 0.5%. Frankly, no matter what it could have signaled to the markets, to believe such minimum minimorum rate increase plays any major role in the difficulties the US has reigniting its economy without huge fiscal or monetary stimulus, seems, excuse me, quite dumb to me.

Much more importance play the risk weighted capital requirements for banks, which have introduced, in the Home of the Brave, a credit risk aversion that seriously distorts the allocation of bank credit to the real economy.

If you need an aide memoire about how idiotic that regulation concocted by the Basel Committee here is one

@PerKurowski ©

What with Growth and Inequality, if regulators had imposed risk weighted bank capital requirements 150 years earlier?

Sir, you hold that “The IMF and the Peterson economists” who in the latter case is none other than Olivier Blanchard, the IMF’s former chief economist, “should not succumb to defeatism, nor to complaints in the financial markets that loose policy is creating distortions or doing more harm than good” “Concern, not panic, over the global economy” March 12.

But you have succumbed to silence what most creates harmful distortions in the allocation of bank credit to the real economy.

This September 2016, there will be 30 years since frightened regulators concocted the credit risk weighted capital requirements for banks.

By allowing banks to leverage more equity with the safe than with the risky, banks earn higher risk adjusted returns on equity with what is perceived or decreed as safe, than on what is perceive as risky, like for instance SMEs and entrepreneurs.

So let me just ask you again to test if your motto “Without fear and without favor” is for real, or just a marketing ploy.

What do you think would have happened if regulators had imposed such credit risk weighting 150 years earlier?

As I see it there would have been much less of that risk-taking our economies need to grow and move forward in order to not stall and fall.

And as I see it, by denying much more ”the risky” the opportunities of accessing bank credit, inequality would be much larger.

So Sir, I simply cannot understand how you can keep mum on such dangerous regulatory distortion.

Who gave unelected bank regulators the right to call it quits for our Western Civilization? Is that not a reason to panic?

@PerKurowski ©

The limits to productivity growth are also defined by the willingness to take risks.

Sir, John Kay writes “The limits to productivity growth are set only by the limits to human inventiveness” “Prepare for the dawn of a second special century” March 2.

Wrong! Wrong! Wrong! These are also set by the willingness to pursue that human inventiveness no matter how risky it is.

And that is what our society has much stopped to do, primarily because our regulators gave our banks incentives to embrace what is perceived as safe and stay away from what is perceived as risky; and this even when (supposedly) according to Mark Twain “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

Risktaking is the oxygen of development and a must for muscular and sustainable economic growth.

As is our banks do not finance any longer the riskier future, they just refinance the safer past.

@PerKurowski ©

IMF, the “bold” action needed is not for “to contain risk”, but for to contain bank regulators’ silly risk aversion.

Sir, I refer to Shawn Donnan’s “IMF urges top economies to join forces in growth push” February 25.

In it IMF is quoted warning: “global market turbulence is starting to hurt the real economy…These developments point to higher risks of a derailed recovery, at a moment when the global economy is highly vulnerable to adverse shocks”

But again, as has been the case for the last decade, IMF says not one word that what really derailed the economy, and now impedes it from getting back on rails, were the distortions in the allocation of credit to the real economy, produced by the risk weighted capital requirements for banks.

And IMF opines: “The global economy needs bold multilateral actions to boost growth and contain risk.”

NO! The “bold” action most needed is not to “contain risk” but to get rid of that silly risk aversion that, around the world, over the last decade, has perhaps impeded millions of bank loans to SMEs and entrepreneurs. 

@PerKurowski ©

With their credit risk weighted capital requirements for banks, regulators doomed our economies to obese growth.

Sir, you refer to growth in the US and hold that the “bearish case for the US rests on the travails in China, and events in the oil market, conspiring to expose “The small but serious threat of a US recession” February 6.

You, as you have done the last decades, simplistically suppose all economic growth is equal. But, the truth is we can have obese economic growth, based on carbohydrates, such a financing consumption, housing and refinancing the safer past; or we can have muscular economic growth, based on proteins, such as taking risks on SMEs and entrepreneurs. And guess which one of these is the sustainable growth?

Ever since regulators, with their credit risk weighted capital requirements, set the banks on a credit risk aversion path, all growth we have perceived has been of the not sustainable obese type.

So no! Whatever happens in China, or with the oil price, if the US, and Europe, insist on having the same failed bank regulators regulating their banks, their economies will go downhill more sooner than later.

You quote Bill Dudley, president of the New York Federal, as noting, in your face, “credit conditions have already tightened as risk aversion has caused a selloff of risky assets.

Dudley should be ashamed. As one of the regulatory community he must know that regulators, long time ago, de facto gave banks the incentives they needed to avoid creating “risky” assets. They made bankers’ wet dreams, that of making the highest expected risk adjusted profits when financing what was perceived as the safest, come true.

@PerKurowski ©

There’s a difference between unwanted recessions and recessions resulting from having other priorities than growth

Sir, Robin Harding asks whether we should use the term recession for an economy that is decreasing as a consequence of demographics. “Recession is a word in need of a rethink” November 14.

He sure has a point and perhaps we should measure economic growth on a per capita basis.

In the same vein, may I express doubts on whether we should use the term recession when the decreasing economic growth is a direct consequence of calling it quits… meaning not wanting to risk what we already got in order to get anything better.

Because, calling it quits that is what bank regulators did, when they allowed banks to earn higher risk adjusted returns on what is perceived ex ante as safe, than on what is perceived as risky.

I mean should there not be a difference between an unwanted recession and a recession that results from prioritizing other wishes?

Most current “recessions” are not unexpected consequences they are the natural results of someone meddling with the markets.

@PerKurowski ©

When regulators double up on the bankers’ aversion to credit risk, solid sustainable economic growth is not possible.

The world placed its banks in the hands of technocrats who have probably never ever walked on the mains streets of the economy and who therefore concocted about the most dangerous regulation ever, the credit risk weighted capital requirements for banks.

Sir, when to the bankers’ aversion to perceived credit risk, you add the regulators aversion to exactly that same perceived credit risk; you get an overreaction to perceived credit risk. That means banks will dangerously finance much too much what is perceived or decreed as safe, like AAA rated securities and Greece, and way too little, or even nothing, those which are perceived as risky, like SMEs and entrepreneurs… the seeds and seedlings of the economy who need a lot of nurturing. (Oops, here I am sounding a bit like Jerzi Kosinski’s Chauncey Gardiner J )

Under such circumstances, there is no way you can achieve solid growth and, because of that, the world has also wasted away much of its resilience capacity, that composed of government’s borrowing space to sustain fiscal deficits, QEs and low interest rates.

How long will it take for the world to wake up? It is hard to say. Over the last decade I have written way over 200 letters to Martin Wolf on the uselessness and dangers of excessive regulatory aversion to credit risk. From what I read in his “Solid growth is harder than blowing bubbles” October 14, it would seem like he still does not get it.

@PerKurowski ©  J

You want faster growth? You want more widely shared growth? Then get rid of current bank regulators.

Sir, Martin Wolf writes: “This is the time to develop ideas on how to achieve the party’s priorities of faster, more widely shared growth” “Two cheers for Corbyn’s challenges to economic convention” October 2.

You want faster growth? Then take away the odious regulatory discriminations against the risky and let the SMEs and entrepreneurs, the tough we need to get going when the going gets tough, have fair access to bank credit.

I quote from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975.

“For the new parts of the country [USA’s West]… there was the right to create banks at will and therewith the notes and deposits that resulted from their loans…[if] the bank failed…someone was left holding the worthless notes… but some borrowers from this bank were now in business...[jobs created]

It was an arrangement which reputable bankers and merchants in the East viewed with extreme distaste… Men of economic wisdom, then as later expressing the views of the reputable business community, spoke of the anarchy of unstable banking… The men of wisdom missed the point. The anarchy served the frontier far better than a more orderly system that kept a tight hand on credit would have done…. what is called sound economics is very often what mirrors the needs of the respectfully affluent.

You want more widely shared growth? Then take away the odious regulatory discriminations that stops banks from giving the risky SMEs and entrepreneurs the opportunity to fair access to bank credit they deserve.

I quote again from John Kenneth Galbraith’s “Money: Whence it came where it went” 1975.

“The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own. And the more casual the conditions under which credit is granted and hence the more impecunious those accommodated, the more egalitarian credit is… Bad banks, unlike good, loaned to the poor risk, which is another name for the poor man.”

But the sad fact is that no new or old Labor, or anyone, would be able to get that advise from a brains trust of seven left-of-centre economic advisers who have never been out on Main-Street, who hate government austerity, but who love bank credit austerity.

Our formal banks have been embraced by a loony regulatory risk aversion that wants to clear, in the capital of banks, the perceived credit risk already cleared for by banks with risk premiums and size of exposures. Or we free them for that or the interests of economic growth, job creation and equality might be best served by unregulated banks operating in the shadows… a la Banca Sommersa style.

@PerKurowski

If you stop banks from financing what’s perceived as risky, there will be no spark strong enough to ignite the economy.

Sir, I refer to Chris Bryant’s and Claire Jones’ “FT Big Read: Quantitative Easing: The printing press rolls… but spending lags” September 8.

I believe it refers to or quotes fourteen experts. And none of these experts mentions the credit risk weighted capital requirements for banks.

There is nothing so dangerous for our economies than the silly credit risk aversion that has been introduced by the Basel Committees’ regulations. Not only does it guarantee that sooner or later safe havens become dangerously overpopulated, it also denies, solely on the basis they are perceived as risky, the access to bank credit to those who could really move the economic frontiers, those who could provide the much needed strong spark that ignites an economy, like the SMEs and the entrepreneurs. The investment decisions by big corporations are of course important, but that’s not where the heart of economic growth lies.

On these regulations impeding the liquidity provided by QEs to reach where it can do the best, I have written at least a hundred letters to you over the last couple of years. For reasons that are inexplicable to me, you, and the experts, have preferred to look away.

ECB is currently in the hands of Mario Draghi, a former Chair of the Financial Stability Board, one who accepts taking huge risks with QEs and zero interest policies, but who finds it unacceptable for banks to lend out many small loans to those perceived as risky and prefers banks to take on huge exposures to what is perceived as safe. Sir, I ask, how far can our economies go with that kind of expertise?

Let me cite John Kenneth Galbraith’s “Money: Whence it came, where it went”. “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections”. Sir, is it not high time for FT to stop pretending and ask regulators to explain why for instance they set the capital banks should be required to hold against unexpected losses, based on the perceptions of expected credit losses already cleared for.

@PerKurowski

The Basel Committee’s credit-risk-avoiding-banks-driven-growth is a populist, fraudulent and dangerous prospectus

Sir, Philip Stephen writes “Greece should not be given a free pass, but the lesson of the post-crisis years has been that governments can go only so far in cutting budgets and improving competitiveness when their economies are shrinking and living standards are in free fall. Austerity-driven growth was always a fraudulent prospectus.” “The stand-off that may sink the euro” January 30.

Yes, but... the Basel Committee requires banks to have more equity when lending to what from a credit point of view is perceived as risky than when lending to what is thought to be safe.

That implies that the regulator, unless totally irresponsible or inept, which is of course a distinct possibility, believes that you can allow banks to earn much higher risk-adjusted returns on equity on what is perceived as safe (or can be dressed up as safe) than on what is perceived as risky, and still get the sufficient risk-taking the economy needs to grow.

I think that promising safer banks by means of methods that distorts the allocation of bank credit to the real economy, is dangerous, even criminal populism. And on this I have written to you more than a thousand letters over the last eight years.

But your absolute silence on this issue, unless there is fear and favoring involved, which is of course always a remote possibility, indicates there must be a total consensus in FT on that such risk-weighted equity requirements for banks, are entirely compatible with the purpose of banks helping to improve the competitiveness of their economies. Why do you not want to explain to me how you arrive at such conclusion? Please.

Martin Wolf, stupidity is not "frighteningly near", it is already here, and it is well entrenched.

Sir, Martin Wolf, with respect to immigration, correctly argues that “the presence of hard-working and ambitious people speaking a multitude of languages and offering a diversity of culture, while fitting with the predominantly liberal culture of the UK, should surely be welcomed”, “Fear of immigration is no reason for Britain to leave Europe” November 28.

And Wolf rightly concludes “It would be folly to let a paroxysm of anxiety over immigration drive the debate on whether UK should stay in EU… unfortunately, that degree of stupidity seems frighteningly near”.

But, let me ask Martin Wolf, sort of for the umpteenth time: what’s the use of inviting immigrants who could provide much dynamism if at the same time, you are fighting against the number one source of dynamism, namely risk-taking?

The credit risk weighted capital requirements for banks, which provide banks with much more incentives to finance the “safer”, the old, the history, than the “riskier”, the new, the future, tells me stupidity has already arrived. And, observing how the debate ignores the distortions in credit allocation these regulation produce, I would venture that stupidity is firmly entrenched.