It is truly incredible how many dare to ascertain things they can have no real idea of. Fake-opinions?

Sir, Chris Giles refers to that Theresa May ended a conversation with a brusque: “You can have all the evidence in the world, but headteachers have told me grammar schools are good for disadvantaged pupils.” But he similarly says: “Regulators have made the global financial system more resilient by major regulatory reforms. Banks now have much bigger capital and liquidity buffers.” “Evidence beats anecdote in politics as well as economics” May 26.

That is also pure anecdote. Giles can really have no real evidence for what he is opining. During the last years banks might very well have accumulated excessive exposures to what ex ante is perceived as very safe, but that equally could ex post turn out to be very risky. Building up that kind of dangerous exposures, against the least required capital, is precisely what regulators’ risk weighted capital requirements for banks do.

“Labour governments favoured ‘light touch’ regulation of the financial sector” “Light-touch? Nonsense! Fake-fact! Sir, I ask, would you call distorting the vital allocation of bank credit to the real economy to be “light touch” regulation?

@PerKurowski

FT, when will you stop lying about “a light-touch oversight of financial markets before the 2008 crash”?

Sir, you write Brussels played no part…in the light-touch oversight of financial markets before the 2008 crash” “Pooled sovereignty has advanced national goals” June 13.

When are you going to stop advancing that notion of a light-touch oversight of financial markets?

In 1988, with the Basel Accord, Basel I, the regulators decided that for the purpose of calculating the risk weighted capital requirements for banks, the risk weight of some friendly sovereigns was zero percent, while the risk weight for supposedly equally friendly citizens, was 100 percent.

With that they started the most heavy-handed statist interventions of financial markets ever.

Banks needed no capital when lending to the infallible sovereign, but 8 percent when lending to citizens.

Banks could leverage equity infinitely when lending to the infallible sovereign, but only 12.5 to 1 when lending to the citizens, those from which the sovereign derives all its strength.

And then, with Basel II, in 2004, the regulators topped up their heavy-handedness by declaring that the risk weights for a private rated AAA to AA was 20 percent while the risk weight of a speculative and worse below BB- rated, one of those banks would never ever dream of building up excessive exposures to, was 150 percent.

And things have not changed significantly. In fact, on the margin, the intervention has become worse.

Was it a light-touch intervention that caused the 2008 crisis to result from excessive exposures to assets allowed being held, against specially little capital? Like with AAA rated securities, or with loans to sovereigns as Greece! No way José!

So FT, when are you to stop lying? It is sure way over time for it. 

@PerKurowski ©

A ‘light touch’ does not distort. Risk weighted capital requirements for banks was pure ‘heavy-handed dumb touch’

Sir, commenting on “Bank of England’s damning report on the 2008 failure of HBOS — seven years since the financial crisis” you write: “A [drawback] is that the regulators themselves — and the politicians who established the “light touch” regulatory regime for the City of London that encouraged the HBOS failure — do not face similar action… Meanwhile, the FSA, which was supposed to ensure that the UK’s biggest banks did not run aground and put the taxpayer at risk, was broadly deficient in its job. It operated within the prevailing political assumption of the time that the FSA “had to be ‘light touch’ in its approach and mindful of the UK’s competitive position”, “Better late then never for banking discipline”, November 20.

Twice you reference ‘light touch’. Wrong! A ‘light touch’ does not distort. The portfolio invariant credit risk weighted capital requirements for banks was pure and unabridged ‘heavy handed dumb hugely distortive touch!

I have explained it to you and your columnists and reporters a thousand of times, in hundreds of different ways, and so here comes a reprise of some of my arguments:

Bank capital is to be a buffer against unexpected losses. To base them on expected credit losses does not make any sense.

Any risk, like credit risk, even if perfectly perceived, causes the wrong actions if excessively considered.

All major bank crises have resulted from excessive exposures to assets perceived ex ante as safe, never from excessive exposures to what was perceived as risky.

To allow banks to hold less capital against some assets allow the banks to earn higher risk adjusted returns on equity on these. And that distorts the allocation of bank credit to the real economy.

To allow some banks to use their own risk models to determine the capital requirements is like allowing kids decide how much ice cream and chocolate to eat that leaves out the spinach and the broccoli.

Without these regulations banks would never ever have been allowed to leverage as much as they did.

To regulate banks without considering their purpose, like allocating bank credit efficiently to the real economy, is utterly irresponsible.

To allow some few credit rating agencies to have such importance for the capital banks needed to hold was to invite systemic risk.

Sir, it was clear that with this piece of regulations banks would dangerously overpopulate safe havens and, equally dangerous for the real economy, underexplore risky, but potentially very rewarding, bays. And that is what happened, and still you have difficulties of seeing it, I do not understand why. Is the difference between ex ante risks and ex post realities too much to handle?

Not understand the role of risk-taking in keeping the economy moving forward so as not to stall and fall, shows lack of vision and wisdom.

And you know I could go on and on.

You write: “By naming [some] who ran HBOS “without due regard to basic standards of banking” and recommending that several face possible bans from working in the industry, it clarifies responsibility.

I wish that would be valid for failed bank regulators too. Most of them have been promoted and are busy hiding or ignoring their own responsibilities.

@PerKurowski ©

Abusive regulators used a cat o’ nine tails whip on banks, and FT insists on calling that ‘light touch’

Sir, once again you refer to “light touch” bank regulations, “In defence of eyebrows and cosy fireside chats” March 4.

No Sir, the portfolio invariant credit risk weighted equity requirements for banks functioned, as effectively as a cat o’ nine tails whip, to keep banks away from exploring risky but productive bays, and to force these to dangerously overpopulate supposedly safe havens.

That bankers absolutely loved to be able to earn much higher risk-adjusted returns on equity on what is perceived as safe than on what is perceived as risky, is an entirely different matter, which has more to do with a design flaw of this particular cat o’ nine tails whip.

You quote Mark Carney on that BoE has managed to cause “42 cases of potential market abuse being referred to the Financial Conduct Authority”. Great, but I just wonder when the regulatory abuse of these equity requirements, those that so distorts the allocation of bank credit to the real economy, is also going to be reported to FCA.

Sooner than later, FT is going to be questioned on its silence on this whole issue and, hopefully, also be held accountable, one way or another.

How can you call the mother of all bank credit distortions an “opiate of ‘light touch’ regulation”?

Sir, Jonathan Ford refers to an “opiate of ‘light touch’ regulation before the financial crisis” “The right balance of banking regulation is still some way off” March 2.

He has no idea. How on earth can you call a regulation which restrict banks to leveraging their equity 12 times to 1 in the presence of something perceived as risky, but allows a 60 and even higher leverage for something perceived as absolutely safe, “light touch”?

Ford speaks about power passing to regulators after 2008. Wrong! Already with Basel I regulators gamed the equity requirements for banks in favor of the sovereigns, meaning the governments, meaning their bosses.

Yes Mr. Ford there is “the risk of starving some parts of bank’s business that, while costly to run and consumptive of capital, are of high social value”. But who decided the rates of capital (equity) consumption, the regulators with their “light touch”?

PS. Mr. Ford, give us one single bank crisis resulting from an excessive exposure to something that was perceived as risky, when banks placed that asset on their balance sheet.

FT, Sir I shiver at the thought of what you would think to be “not-light-touch” bank regulations.

Sir, I refer to your “Lloyds and lessons from past scandals” July 30.

Sir we have bank regulators who told the bank: “Here you have ultra low capital requirements for whatever is perceived ex ante as absolutely safe, so that you can make ultra high returns on your equity financing that, and so that you stay away from financing those risky SMEs and entrepreneurs, even though these need and could do the most good with bank credit”.

In other words… the mother of all capital controls.

And in “Lloyds and lessons from past scandals”, July 30, you refer to this as “the ‘light touch’ regulation that characterized the pre-crunch period”? I shiver at the thought of what you would call firm handed regulations.

PS. I was recently censored, in Venezuela. But you know Sir, that is not the first time… so thanks for the preparation :-)

The conventionals scorched the earth but still reign!

Sir again Martin Wolf in “The economic legacy of Mr Brown” May 14 refers to a “light touch” [financial] regulatory regime. I object, never before has there been such a heavy handed intervention as when the regulators created huge incentives, by means of ridiculous low capital requirements, to lend to anything related to a triple-A, and in effect subsidizing risk adverseness to such an extent that markets followed fake-triple-As into disaster.

Also Martin Wolf repeats several times the correct assessment that one of Mr. Brown’s faults was to follow too much the conventional wisdom. Not only do I find it difficult to put what happened in relation to any “wisdom” but I also believe it would have been more elegant for Wolf to acknowledge that, from his own high pedestal in the Financial Times, he himself has been an important feeder of those conventions.

The worst though is that, with or without Mr Brown, the conventionals still reign... suffices to see how the Financial Stability Board is digging us even deeper in the hole.