Basel Committee tightens the rules on those they do not want banks to lend to

Sir, Brooke Masters reports that the Basel Committee for Banking Supervision has decided to allow “a broader variety of assets, including some equities and all investment grade corporate bonds” to count as part of the liquidity banks will require to have; and she titles it “Basel Committee relaxes liquidity rules for banks” January 12. 

Though the title is technically correct, no doubt, an alternative title would be “Basel Committee tightens the rules on those they do not want banks to lend to”. And that title would be much more significant, since it would directly address one of the most destructive consequences of the Basel Committee’s bank regulations, namely that by giving preferences to “The Infallible” they are odiously discriminating against “The Risky”, and who are, acting on the margin, often the most important actors of the real economy. 

Of course, another title could be that if “The Basel Committee’s Inspector Javert, keeps on fanatically pursuing The Risky”

Basel III sends some back into overheated ovens while leaving others out in arctic colds.

Sir, Mary Watkins and Ralph Atkins title their report on the Basel regulators allowing “highly rated…securities backed by mortgages on homes to be included in liquidity buffers that banks will have to hold”, as “Mortgage-backed securities come in from the cold” January 11.

Has everyone already forgotten that it was precisely that kind of regulations, the allowing of absurd low capital requirements for this type of highly rated securities that set us up for the current crisis? And now the regulators want to send these securities back to the ovens, even increasing the temperature by adding the liquidity requirements based on perceived risk? Sincerely the regulators remain as loony as back in June 2004 when they launched their Basel II!

And, again, where do the regulators get to think they are authorized to send those who because they are perceived as “The Risky” already find themselves in the cold, into extreme arctic colds? Can’t they understand that “The Risky”, the unrated or the not- so-good-rated small and medium business and entrepreneurs, are those we most need to care for and nurture when the real economy goes through difficult times? Sincerely, in the name of all those who will not be able to find employment because of these regulations…Damn the regulators!

In banking the stable doors have not been shut behind the horses, much the contrary.

Sir, John Kay writes about: “The enduring metaphor of regulatory policy is the noise of stable doors being firmly shot behind the horse”, “Leveson should have learnt the lesson of the banking crisis”, January 5. 

Sorry, in the current case that metaphor is not applicable. By keeping capital requirements which are much lower for bank exposures perceived as “absolutely not risky”, than for those perceived as “risky”, and regulators now even making it worse with liquidity capital ratios also based on perceived risk, the doors to the stable are kept wide open, and the few strong calm heavy horses that remain in the stable, are also being frightened into running out, which they will do... sooner or later… because even the safest haven becomes a mortal dangerous trap if overpopulated.

PS. If we humans are supplanted by robots, are we doomed to join Jethro Tull’s “Heavy Horses” in retirement?

PS. If the use of horses by Border Patrol officials in Del Rio, Texas, has now been suspended, will these Border Horses follow the Heavy Horses into history?

The voice of the borrowing commoners, upon which recovery depends, is never heard in Basel

Sir, Brooke Masters and Shahien Nasiripour in “Basel move aims to stoke recovery”, January 8 quote Mayra Rodriguez Valladares, a regulatory consultant, saying “This latest move shows how it is practically impossible to reform the financial sector when you have so divergent interests among politicians, regulators and bankers of the Basel committee member countries”.

Yes but if we are going to have any real recovery in the real economy then the most important actor to consult should be the small-medium businesses and entrepreneurs who need access to bank credit to ask what they think of the regulations and if these are helpful or not. And by now Basel widening slightly the requisites for belonging to the favored aaaristocracy, they have only made it harder for the excluded commoners to access bank credit.

God help us! These regulators have not the faintest understanding of the damages they are causing to our real economies trying to save the banks.

Basel by again favoring the infallible AAAristocracy, deals another blow to the risky commoners of the real economy.

Sir, in your “Basel bends on liquidity rules” you write “a broadened class of eligible assets… makes the liquidity coverage ratio less onerous [for the banks]” January 8.

That is correct, for the banks, but absolutely not for those not included in the “broadened class of eligible assets”. For “The Risky”, the unrated or not so good rated small medium businesses and entrepreneurs, the commoners of the real economy, they will have to face even worsened conditions when accessing bank credit.

In the real economy, those perceived as more risky than others are those who on the margin are the most affected by regulations which favors the aristocracy of “The Infallible”. And this is what Basel bank regulators fail entirely to understand, probably because they have never ever left their desk and walked around in the real economy.

The taxpayers, the unemployed, especially the young, the banks,“The Risky”, of course, but even "The Infallible", the Sovereigns and Triple-A rated aristocracy, we are all going to pay dearly for having entrusted our banks to these regulators.

When are these Basel bank regulators stop concerning themselves exclusively with the health of the banks and start thinking about what the impact of their regulation has on the real economy? Do they really believe banks can survive even when the real economy sinks?