A comprehensive stress test of European banks must also include analyzing what is not on their balance sheets.

Sir, I would like to refer to analysis of the European banks “Still unstable” June 4. 

There, quoting RBS figure it says “for taxpayers to be isolated from future banking crises balance sheets need to be strengthened by more than €400bn”. Since that amount represents only about 1.3 percent of “the combined size of European’s banks balance sheets -€30.7tn-” I would indeed say that is quite an understatement, unless any future expected banking crises are extremely small.

But not only taxpayers are interested in the banks… what about the borrowers? How much capital will it take to satisfy the financing needs of Europe?

My objection with all stress-testing going on with respect of the assets that are on the balance sheets of European banks, is that it completely ignores the assets that needs to be on these balance sheets, if the unemployed European youth is going to stand a chance of not becoming a lost generation.

For instance what about all those loans to middle and small companies, entrepreneurs and start-ups which are not on the books only because dumb regulators require banks to hold more equity against these than against assets deemed, ex ante, as absolutely safe?

PS. Again, for the umpteenth time, there is no growth-hormone as potent for the Too Big To Fail banks, than the risk-weighted capital requirements which allow banks to hold very little capital against assets perceived ex ante as absolutely-safe… precisely those assets of which all major bank crises are made of.

What we need to check is the bank regulators testosterone levels to see if it is sufficient.

Sir, I am not sure about the applicability to banks of Gillian Tett´s “Regulators should get a grip on traders´ hormones” March 16, since Mark Twain´s “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” would indicate that the testosterone level of bankers is far from being abnormally high. 

But what might behoove us is to test the regulators hormones. When these decided that even though banks were already clearing for perceived risks of default of borrowers by means of interest rates, amounts exposed and other terms, they should also consider those same perceptions for their capital requirements, they most definitely evidenced what would seem to be a severe case of lack of testosterone. 

As a direct consequence of the risk-adverseness of the regulatory nannies, we are now suffering from obese bank exposures to what was officially perceived as absolutely not risky, like triple-A rated securities and infallible sovereigns, and anorexic exposures to what was officially perceived as risky, like the small businesses and entrepreneurs.