For transparency, all candidates to chair ECB’s Single Supervisory Mechanism, should publicly answer one question.

Sir, I refer to Claire Jones and Rachel Sanderson reporting on the selection by the European Central Bank, of the person to substitute for Danièle Nouy as the chair of the Single Supervisory Mechanism. “ECB banking watchdog seeks new chief” July 17.

A major turning point for our Western world liberal order, in truth for our whole civilization, was when regulators, surprisingly, 1988, with no one questioning them, decided that what is perceived as risky is more dangerous to our bank system than what is perceived as safe, and proceeded to apply such nonsense with their risk weighted capital requirements for banks.

We have already paid dearly for their stupidity, which excessively boosted bank exposures to AAA rated securities, house mortgages and sovereigns (like Greece), and has made it harder for SMEs and entrepreneurs to access bank credit.

Therefore, in the name of that transparency we all deserve, which of course includes all at the Financial Times, all candidates to chair ECB’s Single Supervisory Mechanism should give their public and reasoned answer to the following question: 

What is more dangerous to our bank system, that which is perceived as risky, or that which is perceived as safe?

Will those involved in the selection process, and who might clearly have a vested interest in it remaining a question that shall not be asked, dare to ask it?

Here an aide memoire on the major mistakes of the RWCR

@PerKurowski

Financial liberalism died when the Basel Committee establishment concocted the risk weighted capital requirements for banks

Sir, Joe Zammit-Lucia writes: “True liberals have always understood the need for continual reform as stagnating systems inevitably get progressively captured by powerful interests. Liberalism dies when it becomes the Establishment, itself captured by vested interests and an apologia for the status quo” “True liberals understand the need for reform” December 29.

What better example of that than when the regulatory establishment, gathered in the mutual admiration club of the Basel Committee decided to protect with lower capital requirements for banks the lending to the safer status quo than any lending to a riskier future.

Bankers loved it, because that allowed them to fulfill their wet dreams of being able to achieve the highest risk adjusted returns on equity on what is perceived as safe; and lower capital requirements naturally opened up much more space for their own bonuses.

Regulators, dumb enough to take ex ante perceived risks to represent real ex post dangers love it, because they think they are making banks safer.

And the world stagnates because of that risk aversion, and turns statist as regulators risk-weighted sovereigns with a 0%, thereby subsidizing public borrowings.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html

@PerKurowski

FT, the Basel Committee has already done more harm to the global liberal order than what one or two Trump could do.

Sir, you write: “The most powerful nation on Earth has elected a real-estate mogul with no experience in government, a self-styled strongman, contemptuous of allies, civil discourse and democratic convention. Barring a protean change of personality, Mr Trump’s victory represents, at face value, a threat to the western democratic model.” “Trump’s victory challenges the global liberal order” December 10.

Let us pray we’re all wrong about our quite natural concerns; for a starter the election result was quite a surprise for most of us, probably even to Mr. Trump.

Nonetheless, as I have been arguing for years, the Basel Accord, and its ensuing bank regulations has already endangered “the global liberal order”, probably much more than what one or a couple of Trumps could do.

First, for the purpose of setting the capital requirements for banks, it determined the risk weight for the sovereign to be 0% while that of We the People was set at 100%. That de facto means that regulators believe government bureaucrats can use bank credit more efficiently than for instance SMEs and entrepreneurs. What on earth has that to do with a global liberal order? Those who still argue the 1989 fall of the Berlin Wall heralded the collapse of communism, must have no idea about 1988 Basel Accord.

And setting the capital requirements for banks based on ex ante perceived risks, risks that were already cleared for by bankers by means of the size of exposures and interest rates, introduced monstrous distortions in the allocation of bank credit to the real economy. What on earth has such distortions to do with a global liberal order? 

And the doubling down on ex ante perceived risk, meant that the more risky-bays where SMEs and entrepreneurs reside, were to be explored much less; while dangerously overpopulating “safe” havens such as sovereigns, AAA rated and housing finance.

What on earth has silly risk aversion induced by regulators to do with a global liberal order that should thrive on risk-taking ?

Also, by much favoring The Safe’s access to bank credit. it negated The Risky many of those credit opportunities that could have helped them to realize their dreams, and helped us with new jobs. What has such odious regulatory discrimination to do with a global liberal order?

Sir, on all this You and the whole Financial Times have seemingly decided to keep mum. It seems a bit suspicious. Though you proudly state “without favour” in your motto, could it be FT is in reality harboring a very pro-statist and interventionist heart?

PS. Sir, please don’t insult our intelligence by telling us this was all done in order to make our banks safer. You know very well that no major or even minor bank crisis has been caused by excessive exposures to what has been ex ante perceived as risky.

@PerKurowski