Whoever thinks banks are now better regulated for sure, must surely be too easily impressed by complexity

Sir, Martin Wolf “argues against premature monetary tightening. Let us establish strong forward momentum first”, “Risks remain amid the global recovery” July 5. 

I would heartily agree, if only all that easy money was flowing more towards investments in the future. It is not! The current risk weighted capital requirements give great incentives for that not to happen.

And when Wolf opines “the core western financial system is far better regulated and capitalised than it was in 2007”, how on earth does he know that?

When regulators regulate based on the same risks bankers perceive, and not based on the possibility that those risk are badly perceived or badly managed, or on unexpected events, we have no firm basis for opining something like that. That is unless we are in awe, like Martin Wolf must be, of any increased regulatory sophistication and complexity; like that reflected in Basel Committee’s “Minimum capital requirements for market risk” of January 2016, and that are now, June 2017, the subject of consultative document titled “Simplified alternative to the standardised approach to market risk capital requirements”.

Sir, the world urgently needs bank regulators who are not solely fixated on avoiding crisis but who also understand the vital importance of good banking between the crises.

As is, the time bankers should allocate to ask that all-important question of “What do you intend to do with the money if we lend it to you?”, will be taken up more and more with trying to understand and fill out regulatory material.

And what has easy money done to equity markets? Corporations engaged in short termism have taken on debt in order to pay out dividends and repurchase shares. Is that something good?

Wolf writes: “The BIS talks, sensibly, of building resilience. A part of this lies in ensuring that growth becomes less dependent on debt.” Yet by treating it only as one task of many, Wolf sort of diminishes its relative importance. Debt finances much anticipation of demand, when that debt hits the wall of having to be repaid, future demand will fall.

Sir, as I see it, never ever has a generation used up so much public and private borrowing capacity for its own short-term benefits. Social security and pension plans, sold by governments on the basis of an expected 7% real return, are by the minute taking on more characteristics of Ponzi schemes, using fresh money from future retirees to pay out benefits of the current.

http://subprimeregulations.blogspot.com/2016/08/statist-baby-boomers-want-us-to-extract.html

@PerKurowski

ECB’s Mario Draghi, as a bank regulator, is he taking us all for a ride? Is he unwittingly (dumb) or wittingly (bad)?

Sir, Claire Jones quotes Mari Draghi with: “The last thing we need is a relaxation of regulation… The idea of repeating the conditions of before the crisis is very worrisome.” “Draghi pushes back against protectionist programme” February 7.

As the former Chairman of the Financial Stability Board, and as the current Chairman of the Group of Governors and Heads of Supervision to which the Basel Committee for Banking Supervision reports, Mario Draghi is as responsible for bank regulations as anyone can be.

And so this is a man who clearly believes that what is rated AAA to AA represents such little risk for the banking system that it merits a risk weight of only 20%, while what is rated below BB- is so dangerous that it must be risk weighted 150%. That is of course sheer lunacy.

And so this is a man who clearly believes that a sovereign can have a risk weight of 0%, while the citizens who give the sovereign its strength must be risk weighted 100%. That is of course run-away statism.

And that’s why we got hit with the AAA rated securities backed with mortgages to the subprime sector in the USA and Greece with way too much sovereign debt.

Sir, now I dare you to read the latest document issued by the Basel Committee, titled “Frequently asked questions on market risk capital requirements” and then dare, without fear and without favor, answer me this very straightforward question, with a Yes or a No. Do you think the Basel Committee is digging us out, or digging us further down, in the regulatory hole they have placed us in?

Sir, in my mind it is perfectly clear in that Mario Draghi has no moral authority whatsoever, to lecture anyone about manipulation or protectionism.

The risk weighted capital requirements for banks is an outright manipulation of the access to bank credit that discriminates against the risky, like SMEs and entrepreneurs, and protects the interests of the banks and of those perceived, decreed or concocted as safe. 

@PerKurowski