How long will regulators believe that unrated entrepreneurs pose more danger to banks than investment graded companies?

Sir, Brooke Masters writes that “a group of banks collectively lent €1.6bn to a South African billionaire. At the time, these “margin loans” looked like really safe bets because the lending was secured by 628m Steinhoff shares worth €3.2bn and the company had an investment-grade rating” and now they “were sitting on paper losses of €1.2bn” “Beware of top execs who depend on share-backed loans”, December 16.

Sir, this just another evidence of that what is really dangerous for banks is not what is perceived risky but what could erroneously be perceived as safe. And therefore that the current risk weighted capital requirements for banks makes absolutely no sense?

Sir, why is it so hard for you to ask regulators: “Is it not when banks perceive something as safe that we would like for these to hold the most capital?”

Are you afraid they will give you a convincing answer and leave you standing there as a fool? Don’t you think that if they had had an answer they would have shut me up decades ago?

Simon Kuper in today’s FT writes about how America an Britain have fallen into the hands of incompetent amateurish well-off baby boomer politicians, born between 1946 and 1964, “Brexit, Trump and a generation of incompetents”.

Sir why could that not also be applicable to baby boomer regulators, like for instance Mario Draghi, Stefan Ingves or Mark Carney?

PS. We should note though that it was a pre-baby-boomer generation’s Paul Volcker and Robin Leigh-Pemberton who were responsible for the origins of this monumental regulatory faux pas.

@PerKurowski

Trivia: What’s more risky for the bank systems, what’s perceived as risky or what’s perceived as safe?

Sir, Tim Harford, referencing the work of two psychologists, David Dunning and Justin Kruger writes: “The incompetent ones were blissfully unaware of their incompetence. The good students knew that they were good; the bad students had no clue that they were bad.”, “Can trivia help us to be less ignorant of our own ignorance?” September 1.

Sir, when I think about what the bank regulators have done with their risk weighted capital requirements for banks; and that after decades they still don’t know it, I can only conclude that according to Dunning and Kruger they would qualify as incompetent ones blissfully unaware of their incompetence.

I am not a bad person, and so I would have no problem leaving those besserwissers to their illusions but, unfortunately, they are doing too much damage to the future of my children and grandchildren, and so I have to fight them… and so should you Sir.

@PerKurowski