For banks to lend to businesses it takes two to tango, liquidity and bank capital.

Sir, Valentina Romei, with respect to ECB’s targeted longer term refinancing operationswrites “According to TS Lombard: In both Spain and Italy, TLTRO borrowing corresponds to about 15 per cent of gross domestic product… Yet in both Italy and Spain, growth in commercial bank loan books has been weak”. Francesca Vasciminno, of Fitch Ratings in Milan explains it with “Partially this is the result of banks using the cheap funds “opportunistically to invest in government bonds if yields are attractive” “ECB loans fail to ignite bank lending” April 10.

Does ECB not know that banks in Italy and Spain, which as most banks are not awash with capital to say the least, need to hold 8% in capital against risk weighted assets and currently, because of EU’s insane Sovereign Debt Privileges, 0% against loans (or bonds) to their government?

There simply is no way that a TLTRO, or any other fancy program, is going to sustainably result in more and in relative equitable terms business lending by banks, without the removal of the risk weighted bank capital requirements. One might think that the introduction of a leverage ratio might have reduced its distortions but the truth is that, on the margins, there where it most counts, the distortion pressure of these has only increased.

Sir, soon for the three thousands time, before the insane risk weighted bank capital requirements disappear, there will be no muscular economic growth, which requires risky proteins, and all we will see is increased bank obesity resulting from increased exposures to safe carbs.

@PerKurowski

A Leverage Ratio makes banks hold equity on all exposures, to cover specially for unexpected losses, like cyber attacks

Sir, I refer to the letter signed by financial sector representatives: “Leverage ratio threat to the cleared derivatives ecosystem” August 27.

What is argued, that segregated cash margins, held to guarantee the commitments of clients, should be deducted from a bank’s actual exposure, sounds quite reasonable since the current construct of the leverage ratio “fails to consider existing market regulations that mitigate…losses”.

But when it is said that: “The leverage ratio is designed to require banks to hold capital against actual exposures to loss”, that is wrong. The leverage ratio is there to cover for any exposures to losses, most importantly any unexpected losses.

It would for instance be easier for regulators to just state that the leverage ratio is to cover against cyber-attacks… so as to clear the air, while moving towards a completely different Basel IV.

@PerKurowski