The seeds of the next debt crisis are to be found in the kicking of the 2008 crisis can forward, without correcting for what caused that crisis.

Sir, I refer to John Plender’s “The seeds of the next debt crisis” March 4.

Plender writes: “From the late 1980s, central banks — and especially the Fed — conducted what came to be known as “asymmetric monetary policy”, whereby they supported markets when they plunged but failed to damp them down when they were prone to bubbles. Excessive risk taking in banking was the natural consequence”

Not exactly “risk taking”! The risk weighted capital requirements caused excessive dangerous bank exposures, not to what was perceived risky, like loans to entrepreneurs, but to what was perceived safe, like residential mortgages; or decreed as safe, like the sovereign; or concocted as safe, like what banks’ internal risk models produced.

Plender asks: “Has the regulatory response to the great financial crisis been sufficient to rule out another systemic crisis and will the increase in banks’ capital provide an adequate buffer against the losses that will result from widespread mispricing of risk?”

No, it has not been sufficient. That because the incoherent response to a crisis caused by AAA rated securities backed with mortgages to the US’s subprime sector, was to keep on using risk weighted bank capital requirements based on perceived EXPECTED losses, and not on UNEXPECTED losses.

Plender writes: “The central banks’ quantitative easing since the crisis, which involves the purchase of government bonds and other assets, is, in effect, a continuation of this asymmetric approach”

Indeed, in 2006, when an upcoming crisis was slowly being detected by some, FT published a letter in which I argued for “The long-term benefits of a hard landing”. Sadly, central bankers and regulators wanted nothing of such thing, on their watch, and kicked the 2008 crisis can forward to our children and grandchildren, as hard as they could, and here we are… with world borrowings up to the tilt, and lenders waiting to be blown away by a coronavirus.

PS. At this moment, this letter not included, in my TeaWithFT blog, there appears 2.948 letters sent to you over soon two decades on the issue of “subprime banking regulations”.

@PerKurowski

Gillian Tett, worry less about grey-hair’s casinos and much more about your young’s bank regulators manipulated ones.

Sir, Gillian Tett, as she should, becomes depressed when she ends up at an Atlantic City casino that “looked more like an electronic opium den for senior citizen.” “The rise of the silver slotter leaves me with a sour taste” October 29.

But, unless there is fraud, each one of those bets at the Atlantic City casino, has exactly the same expected pay out; namely a slight negative value because of the houses wins, like that when a zero comes up on the roulette. The cost of entertainment.

But out there in the other world, in the Main-Street, regulators have told banks that if they play it safe, like on black or read, like on sovereigns, AAA rated, or financing residential houses, they will earn much higher (expected) returns on equity, than if they bet on risky SMEs or entrepreneurs.

If Gillian Tett is concerned about the future of her children and grandchildren, that should depress her much more.

Sir, even though I have seen some few casino players fading away in absolute tragic destitution, I assure you that what the Basel Committee has done to the grey haired future of my, and your children and grand children, leaves me with a much more sour taste than thousands of Atlantic City casinos.

@PerKurowski ©

Perceived credit risk is all about expected losses, while bank capital should be a buffer against unexpected losses.

Sir, John Kay writes that Warren Buffet, “In a revealing moment, when asked about the absence of conventional due diligence in his acquisition process; acknowledged that Berkshire had made bad acquisitions, but never one that could have been avoided by the kind of information that due diligence might have revealed.” “The Buffett model is widely worshipped but little copied” May 4.

Translate the above into bank regulations and it would mean: Banks could always lose but not because of the information a credit analysis might have revealed… much more dangerous than the expected, is the unexpected.

And that Sir is one of the many reasons why I believe current regulators are worse than fools. They defined the capital banks should be required to have, in order to confront unexpected losses, based on expected perceived credit risks. 

Please don’t tell me you think that is smart. In fact, the safer something is perceived, the greater is its potential to deliver huge unexpected losses. In fact, from this perspective, the safer something is perceived, the larger should the capital requirements for a bank be.

By the way let me make it clear that I am arguing this only to make a point, and I am not now suggesting we should distort the allocation of bank credit to the real economy in the other direction, favoring the risky.

Sir, if we are to distort, let us at least, as a minimum minimorum, do so with a purpose. For instance make the capital requirements for banks based on job creation and earth sustainability ratings.

PS. Here are plenty of reasons for why I believe the bank regulators in the Basel Committee are complete idiots… or something worse 

@PerKurowski ©

Mervyn King, for bank regulators to use the expected, as a direct proxy for the unexpected was, and is, radically dumb

Sir, John Plender, March 3, reviewed Mervyn King’s book “The End of Alchemy: Money, Banking and the Future of the Global Economy" And in doing so Plender writes that King argues that in a world of what economists now call “radical uncertainty”, it is not always possible to compute the expected utility of any action. There is simply no way of identifying the probabilities of all future events and no set of economist’s equations that describe people’s attempts to cope with that uncertainty.”

And according to Plender, King proposes a “central bankerly pawnbroking” facility to supply “liquidity, or emergency money, within a framework that eliminates the incentive for bank runs… That would displace what King regards as a flawed risk-weighted capital regime ill-suited to addressing radical uncertainty.”

And John Kay ends his discussion of King’s book with: “There is a world of difference between low-probability events drawn from the tail of a known statistical distribution and extreme events that happen but had not previously been imagined”, “The enduring certainty of radical uncertainty”, April 6.

Hold it there has all that really anything to do with the current risk weighted capital requirements for banks? Absolutely not!

What happened was that since the regulators did not know how to estimate the unexpected losses, those that bank capital is foremost to safeguard agains, they went out and used the expected credit risks. And since those risk were already cleared for by banks, with interest rates and the size of exposures, credit risks, when also used to set capital requirements, were given too much consideration.

And, for the umpteenth time: any risk, even if perfectly perceived leads to wrong actions if excessively considered.

And Plender also wrote about King arguing: “Banks satisfied investors’ desperate search for income by creating increasingly complex and risky financial products based chiefly on mortgage debt. Bank balance sheets grew explosively as property lending ballooned. At the same time, the capital of banks shrank as they took on more risk.

Again that is not really so! The increasingly complex and risky financial products chosen were entirely based on that these could be argued to be very safe, and therefore require banks to hold less capital. For instance mortgage debt would never ever have exploded as it did, if instead of receiving a 35 percent risk weight, it had the 100 percent risk weight assigned to “risky” SMEs and entrepreneurs.

And Plender also wrote about King arguing: “They were trapped by what game theorists call a prisoner’s dilemma. If they retreated from riskier lending and trading strategies while reducing their borrowings, a decline in short-term profits relative to their competitors would have caused staff to defect in pursuit of higher bonuses elsewhere and prompted calls for the chief executive’s head.”

Those “short tem profits” are not some absolute profits, but returns on equity, and so banks, searching for the highest profits, naturally favored those exposures that provided the highest expected risk adjusted returns on equity, in other words those that could be most leveraged.

Sir, I have no respect for a regulator like Mervyn King. He and all his colleagues decided to regulate banks without defining their purpose. Had they done so they would have known, that the most important social purpose of banks is to allocate credit efficiently to the real economy.

Now our banks do not finance the riskier future they just refinance the, for the short time being, safer past.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926 

I can understand journalists covering the reputation of old friends… but is that really their role and duty? “Without fear and without favor”… Hah!

@PerKurowski ©

Bank regulators make sophisticated remarks about the need of countercyclical regulations and design pro-cyclical ones.

Sir, I refer to Joe Leahy’s “Rating agency pressure on BTG Pactual” November 27.

Downgrading… depending on whether it crosses some regulatory thresholds, could mean banks are required to hold more capital against loans assets so affected. Were it to happen, this could, in a pro-cyclical fashion, only help to increase the resulting problems.

And what would usually trigger such a credit degrading? Mostly some unexpected events, like in this case the arrest of BTG Pactual’s chief executive, André Esteves.

And this evidences, for the umpteenth time, the dangers with using ex ante perceived expected credit risks to define the capital banks should hold against unexpected losses.

When the outlook is rosy and so many could be perceived as safe then the capital requirements go down, so bank can leverage even more, so bank can give even more credit, and everything will look even rosier.

When the outlook is darker and many could be perceived as risky, then the capital requirements go up, so bank can leverage less, so banks have to contract the credit they have awarded, and so everything will look even darker yet.

Regulators fill their mouths with sophisticated remarks about the need of countercyclical regulations but manage somehow, with a little help from silent FT, to avoid being held accountable when they design pro-cyclical nonsense.

@PerKurowski ©

Insurance sector: Again loony regulators are trying to cover for unexpected losses by analyzing the expected ones.

Sir, I refer to Alistair Gray’s report on “the capital [insurance companies] must hold against unexpected losses” “Insurers face tough new safety rules” October 5.

In it Gray writes: “A paper to be published quantifies the higher capital requirements for the designated insurers. The size of the hit will depend on each company’s mix of business and how systemically important regulators deem them to be. So-called non-traditional and non-insurance (NTNI) activities carry the largest surcharges, of between 12 per cent and 25 per cent.”

So again we have regulators, like those of banks, who set capital requirements for unexpected losses based on the expected risks they perceive. Loony! Do regulators really think they can perceive risks better than the insurance companies? Is there not a huge risk that both the insurance companies and the regulators will perceive the same risks, and so that there therefore will be an overreaction to these risks, which obviously means a sub-consideration of other risks? And boy, are these regulations just screaming to be gamed?

Also, at a moment that so many want infrastructure projects to be started as a way of reactivating the economy, who of the regulators is thinking about the fact that many of the risky long term projects, often financed by insurance companies… could perhaps not happen only because of wrong and distorting capital requirements.

Where have all humble regulators that know of the importance of not interfering gone? When will they ever learn, when will they ever learn?

Why do they in order to cover for unexpected losses not just set for instance a 10% capital requirement on all assets? Are they scared they would then look like less sophisticated regulators to the general public? If so, God save us from regulators suffering an inferiority complex.

@PerKurowski ©

Mark Carney should not warn other about climate change risks, if he neglects to do what is in his hands to do about it

Sir, you write that BoE is rightly worried about the dangers posed by climate change “Carney’s warning on carbon’s financial risks". October 1.

Of course the consequences of climate change, and of the regulations designed to stymie it, and of the gaming of those regulations, represent a huge potential of unexpected losses. But, if Mark Carney were really concerned about climate change then, as the current Chair of the Financial Stability Board, instead of casting himself as Cassandra in order to warn others, he would see to that bank regulators duly considered that risk.

For instance he could try to convince his colleagues that banks, in relative terms, should be allowed to hold less capital when helping to finance sustainability, so that they earn higher risk adjusted returns on equity when they finance sustainability, and so that banks finance sustainability a lot.

But instead Carney and his colleagues have set their risk based capital requirements for banks solely based on ex ante perceived credit risks, basically the only expected risks that banks already clear for. If that is not dumb what is?

Sir, what we now have is unbelievable. Banks, those who concentrate the most knowledge about evaluating credit risks, and should therefore be the first line of credit-risk takers for the society, by lending to for instance SMEs and entrepreneurs, are being allowed to earn much higher risk adjusted returns on their equity when minimizing credit risks… which leaves the risk-taking soldiering to all us other… widows and orphans included.

And, talking about moral responsibilities, should not Mark Carney have warned all aspiring “risky” entrepreneurs that, because they were usually perceived as risky from a credit point of view, they should forget their plans and dreams as they could no longer count on a fair access to bank credit?

And, talking about moral responsibilities, should not Mark Carney warn all our young that, henceforth, banks would not be financing sufficiently their future, as that requires a lot of risk-taking, but would mostly be dedicated to refinancing a safer past.

And, talking about moral responsibilities, how can bank regulators ignore the fact that it is not what is perceived as risky that poses the major dangers for our banking system, it is always what can be erroneously perceived as absolutely safe.

Sir, as I see it the Basel Committee regulators have and are producing losses of almost a climate change scale… and FT refuses to warn about it.

@PerKurowski

Psychological barriers to entrepreneurship, like an overanxious nannie mentality, thrive in developed nations too.

Sir, Sarah Murray writes: “the biggest barriers to entrepreneurship are psychological.”, “A variety of barriers thwart entrepreneurs in poor nations” September 15.

Indeed, so it is, and not only in poor nations.

Entrepreneurs, because they are most often ex ante perceived as poor credit risks, need to pay higher risk premiums, and have access to smaller loans; and therefore represent, ex post, quite little danger for banks.

Those ex ante perceived as very good credit risks, are required to pay much smaller risk premiums, and have access to much larger loans; and therefore, if ex post they turn out to be risky, represent much bigger dangers to banks.

Unfortunately, because of some psychological weakness, a sort of overanxious and overprotective nannie mentality, the current batch of bank regulators confuse the ex ante expected losses with the ex post unexpected losses, and so require banks to hold more capital when lending to “risky” entrepreneurs, than when lending to “safe” sovereigns and highly rated private sector borrowers.

And that allows banks to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky… and we know what that means to the access to bank credit of the entrepreneurs.

@PerKurowski

We urgently need “Flop Pickers” or “Harbingers of Failure” to test those who are being picked as bank regulators.

Sir, I refer to Tim Harford’s “Meet the Flop Pickers” August 29. Boy could some good “Harbingers of Failure” have come in handy to stop the disastrous bank regulations flop.

What did the members of the Basel Committee for Banking Supervision do?

They based their capital requirements for banks on perceived credit risks, blithely ignoring that those risks, by means of interest rates and size of exposure, were about the only risks already being cleared for by the banks.

They assigned much of the role in determining credit risk to some very few human fallible credit rating agencies.

They based their capital requirements for banks, those that are primarily to cover for unexpected losses, on the credit risk perceptions about expected losses, blithely ignoring that the safer something is perceived, the larger its potential of delivering unexpected losses.

They regulated banks not caring one iota about the purpose of banks, and so they blithely ignored the vital function of banks of allocating bank credit efficiently to the real economy.

And so, by allowing those perceived as absolutely safe to have even more and cheaper access to bank credit than normal, while those perceived as “risky”, like unrated SMEs and entrepreneurs to have even less and more expensive bank credit than normal, they have made a great mess of banks, one of the most important components of our financial system.

And, to top it up, they decided governments were much safer than the private sector and that therefore bank needed to hold minimum capital when lending to governments, something that de facto meant that regulators believe government bureaucrats can use bank credit more efficiently than the private sector.

So you tell me… would it not be extremely important to have access to “Flop Pickers” or “Harbingers of Failure” to test those who are to be picked as bank regulators?

Could you please ask Eric Anderson, Song Lin, Duncan Simester and Catherine Tucker to see if they could find us some adequate Herbs to tests bank regulation products?

Urgently... since the same failed regulators keep on regulating without even acknowledging, and much less correcting their mistakes!

PS. They have blamed credit rating agencies though... without understanding that their regulations would cause dangerous distortions even if the credit ratings were perfect.

@PerKurowski

If John Kay truly believes in liberal education, he should help question the decisions of the job-specific trained.

Sir, John Kay writes: “the capacities to think critically, judge numbers, compose prose and observe carefully — the capacities that education can and should develop — will be as useful then as they are today” “The timeless benefits of a liberal education” August 26.

Indeed but that requires that the capacity of thinking critically gets a chance to be heard by those who certify having job-specific skills. And for that to happen those who write newspaper columns have a very special role in forwarding the observations.

Here just one example: Bank regulators, with supposedly many job specific skills, decided for instance that assets rated BB- present immensely more possibilities of generating unexpected losses than assets rated AAA. And as a consequence they require banks to hold much more capital against BB- assets than against AAA assets.

And there are freethinkers like me who holds that to be utter nonsense, because clearly the riskier an asset is perceived, by definition the less are its possibilities to generate unexpected losses. 

But, can I get help to forward this and many other similar observations on our current bank regulations? No - because journalists clearly believe much more in the regulators' job specific skills than in any liberal education and critical thinking. Is it not so Mr. Kay?

@PerKurowski

Citizens should question the purpose of banks, but FT should also have a duty to forward those questions.

Sir, Saker Nusseibeh writes that citizens should question the purpose of the financial system “Systemic moral hazard is embedded in current economic view”, FTfm August 2.

Indeed, but that is mostly because the regulators never found it necessary to define the purpose of our banks, before regulating these.

With technocratic arrogance they decided that when banks lend to “safe” governments and to members of the AAArisktocracy, these should be allowed to hold much less capital (equity) than when lending to the “risky”, like to the SMEs and entrepreneurs.

That meant that banks would then in relative terms lend more and at lower rates to “safe” governments and members of the AAArisktocracy, than they would in the absence of these regulations.

And that means, almost explicitly, that regulators believe “safe” governments and members of the AAArisktocracy can use bank credit more efficiently than what SMEs and entrepreneurs can do. And that is of course pure and unabridged lunacy.

I have been questioning those capital requirements, for more than a decade, in soon 2.000 letters to the Financial Times. Long time ago I was told these were ignored because I was becoming tiresome and monotonous… as if that has anything to do with the fundaments or importance of my questions.

Again, FT why do all of you believe capital requirements for banks, those which are to cover for unexpected losses, should be higher for the risky than for the safe, only because the former present higher expected losses? I dare you to give me one single reason for it and then be willing to debate it publicly.

@PerKurowski

PS. From a 2003 World Bank workshop on bank regulations: “I have been sitting here for most of these five days without being able to detect a single formula or word indicating that growth and credits are also a function of bank regulations.”

The Basel Committee, with its bank regulations, represents a dangerous cult gone mainstream.

Sir, Douglas Coupland writes: “When it comes to the sharing of an ethos, history shows us that the more irrational a shared belief is, the better. The underpinning maths of cultism is that when two people with self-perceived marginalised views meet, they mutually reinforce these beliefs, ratcheting up the craziness until you have a pair of full-blown nutcases” “WE ARE DATA-The future of machine intelligence” July 18.

That, for us the truly rational, describes indeed the real great danger of the Internet; but also of course, for some lonely brain nuts, its real advantages. Before it could take you a lifetime to find a likeminded nut… now you are almost guaranteed to find plenty of them, in seconds, with only a couple of few searches. And, if not, you can always support yourself by using aliases.

But that said, if we include in cultism the following definition: “A usually nonscientific method or regimen claimed by its originator to have exclusive or exceptional power in curing a particular disease.”, then we should never forget that cultism can extend much further than to people with “self-perceived marginalised views”

Take for instance the Basel Committee: Its members designed a totally nonscientific method they thought could contain bank crisis, and managed to impose it worldwide. In other words they made a cult go mainstream… and clearly that has to be more dangerous than any cult exercised on the web.

“Unscientific”? Of course! They based their capital requirements for banks not on empirical evidence about what has caused all major bank crises in history, which is always excessive exposures to something erroneously perceived as safe; but on the perceived credit risks of banks assets, as if the banker was totally oblivious of these perceptions.

“Unscientific”? Of course! To figure out an estimate for the unexpected losses for which they should require banks to hold at least some capital, they used as a proxy the expected losses… entirely ignoring that the potential of unexpected losses for banks that an asset can cause, is always higher the safer that asset is perceived.

@PerKurowski

Regulators believe those perceived as “safe”, will originate less unexpected losses for banks than the “risky”. Loony!

Sir, I refer to your Special Report “Risk Management – Property” April 27.

It mentions the risks of: climate change, cyber security breaches, terrorism, earthquakes… all those risks that are difficult to currently estimate but that can produce extraordinary unexpected losses… including for banks.

But those risks are not considered at all by regulators who, when setting their equity requirements for banks, use the expected losses derived from perceived credit risks as a proxy for the unexpected… more-credit-risk-more-capital and less credit-risk-less capital

It sort of translates in that regulators would seem to believe that risks, like those listed affect more the “risky” like the SMEs, than the sovereigns and the members of the AAArisktocracy. I can’t believe you believe that too.

@PerKurowski

Risk of cyber-attack weighted equity requirements for banks make much more sense than the credit-risk weighted

Sir, I refer to Gillian Tett’s “Will cyber attacks mean the light go out?” April 25.

In it Tett describes the possibility of some huge unexpected losses that could happen to banks or to borrowers. And unexpected losses is precisely against which for instance banks, should be required to hold equity.

Instead our current regulators in the Basel Committee require banks to hold equity against the expected losses reflected in the perceived credit risks. As if the unexpected would be a function of the expected? Now how dumb is not that?

But perhaps there is a relation, though not the one the regulators see. The truth is that the safer something seems, the worse could be the consequences of something unexpected.

@PerKurowski

The Basel Committee's bank regulation's Achilles heel

Capital, as in bank credit, is not “deregulated to a sensible degree”. It is clearly insensibly misregulated.

Sir, I refer to your “UK’s weak productivity invites a bolder response” April 22.

If a corporate borrower, who for instance has a credit rating of A, becomes downgraded one notch to BBB+, the expected losses naturally go up. But the bank equity requirements, which are to cover for unexpected losses, these also go up; in Basel II from 4 to 8 percent, and that is not natural.

The reason for this double whammy, that in a downturn hits the bank’s capacity to give credit, has to do with the fact that Basel regulations derives the estimation of unexpected losses, from the probabilities of default, in other words from the expected losses.

And of course, as I have told you, not joking more than a 1.000 times, the existence of different bank equity requirements based on different credit risk perceptions, also makes it impossible for banks to allocate credit efficiently to the real economy.

And so much of the fall in productive potential that you attribute to “the economy suffered a shock of demand”, is instead the result of these crazy bank regulations that direct the flows of bank credit to what’s “safe” and away from what’s “risky”. And in consequence your opinion that “capital” is “deregulated to a sensible degree” is just laughable. These are clearly very insensibly misregulated.

@PerKurowski

When banks earn higher risk adjusted returns on equity financing houses than financing the creation of jobs… something is wrong.

Sir, Congressman John Delaney writes “A significant contributor to the financial crisis was the governments mispricing of risk” “A pragmatic plan to free the mortgage market from Washington” April 21.

That is not exactly so. First, it is never the role of the government to correctly price risks, but to insure there are sufficient defenses for when the market and banks fail to correctly price risk… in other words, to care more for the unexpected than about the expected. And, while doing so, it is also definitely not the role of the government to distort the markets… something which unfortunately it has been doing lately.

With those risk-weighted capital requirements that have been so much in vogue lately among regulators, by allowing banks to hold much less capital against what is perceived as “safe”, which does not mean it will be safe, than against what is perceived as “risky”, which does not mean it has to be risky, regulators have allowed banks to earn higher returns on equity when lending to the safe than when lending to the risky… and of course that distorts. For instance it allows banks to earn more financing the houses than financing the riskier creation of jobs needed to pay for those houses.

When Congressman Delaney so correctly writes to remove “the harmful distortion that government involvement causes” I just wish he knew more about the mother of all regulatory distortions.

Unfortunately, the fact that something is correctly stated does not suffice for it to be correctly understood

Sir, John Authers writes “Risk is greatest when there is no perception of risk” March 3. Indeed that is what I have written to you and to Authers innumerable letters over the years. Those perceived as “absolutely safe” are those who pose the largest possibility of dangerous unexpected losses.

And yet, nailing the truth, and even holding that “regulation can easily be counterproductive”, Authers’ still seems incapable, or not wanting, to extract the most important lesson from it.

That lesson is of course that current risk based capital requirements for banks, those based on the perceptions about the risks of expected losses make absolutely no sense at all.

The strange inability to infer the right conclusions from the right facts is also made very clear by how Authers’ ends his article. There he holds that the cure for “the greatest risks come from those things that have no history of problems, and which are not perceived as high risk” is additional “research [in this case] into fund manager’s systemic risks”… and that, Sir, is proposing to dig us even deeper in the hole he now knows we’re in.

What’s the added value of bank regulators who only concern themselves with the risks bankers already perceive?

Sir I refer to Martin Arnold´s “Foreign banks scramble to calculate potential losses if crisis deepens [in Ukraine]", March 3, just to remind you of the fact that these are the type of “unexpected losses” against which bank regulators, in excess of their quite low leverage ratio, do not require banks to have capital against.

In other words poor us, our banks are in hand of regulators who are primarily concerned with the risks we, or at least our bankers, should all be able to perceive. What’s the added value of that?

The “peskiest exceptional” that hit our banking system was dumb Basel Committee regulators.

Sir, the LEX Column, February 14, when referring to French banks, writes about how hard it is to provide a shareholder’s return when “pesky exceptionals keep butting in”.

But, the reality of “pesky exceptionals”, is the primary reason for which banks need to hold capital because if any ordinarily perceived risks are not adequately managed then the responsible banker should be fired or the bank must fail… or both.

Unfortunately that is precisely the big mistake of Basel Committee’s bank regulations… the capital requirements were set not based on the possibility of unexpected “pesky exceptionals”, but based on the ordinary perceived risks of the expected losses.

In other words, with Basel II, we had the misfortune to run into exceptionally pesky regulators; who we now have unfortunately allowed to keep on working on Basel III. In this respect not holding regulators accountable, is also turning us into pesky exceptionals.

Richard Lambert, before concerning himself with bankers’ education should think about bank regulators’

Sir, I refer to John Gapper’s “There is no such thing as the banking profession” February 13.

There Gapper writes that an option favored, among others by Sir Richard Lambert, head of UK’s Banking Standards Review, “is to encourage bankers to take professional exams and rebuild their sense of pride and identity. Bad bankers might be struck off by professional bodies”

Good idea, but what about the professional exams for bank regulators which right now seems of even urgent importance.

You know Sir I hold this because bank regulators who decide to use perceived risk of expected losses to set the capital requirements for banks, that which is primarily to cover for any unexpected losses, evidence they do not know what they are doing. With their amateurism they not only created this crisis, by making banks create dangerous exposures to what is “absolutely safe”, but they also keep us from getting out of the crisis, by de-incentivizing banks from lending to “risky” medium and small businesses, entrepreneurs and start-ups.

So please, enroll regulators in a Bank Regulations 101 course… as fast as possible. With their distortions they have put the current generation on the track of becoming a lost one.