There’s a distortion of the allocation of bank credit to the economy that does not want to be named, but must be named.

Sir, Mohamed El-Erian writes: “BoE had already gone beyond consensus expectations… by skillfully combining four elements — an interest-rate cut, a reinvigorated and broadened asset purchase program (QE), a special funding scheme for banks, and effective communication” ,“Bank of England bond-buying needs a fiscal helping hand” August 16.

How sad BoE is not skillful enough to understand that a regulatory distortion of the allocation of bank credit to the real economy is blocking the chances to achieve stronger and more sustainable economic growth.

What distortion do I refer to? The risk weighted capital requirements for banks of course. That which allows banks to leverage equity more with assets perceived as safe than with assets perceived as risky; and thereby that which results in banks earning higher expected risk-adjusted returns on equity on assets perceived as safe, than on assets perceived as risky.

As a result too much of BoE’s, and other central banks, and fiscal stimulus, gets to be wasted; by mostly flowing to increase the value of existing assets (stagflation profiteering) and by that way hindering the opportunities of “risky” SMEs and entrepreneurs to gain access to bank credit.

What would happen to UK government borrowings if the sovereign UK, now assigned a zero percent risk weight, had to carry the same risk weight as We the People, 100 percent? To top it up there are many other statist pro-government funding subsidies.

Sir, we have to find a smart way to urgently work our banks out of these regulations, something made difficult by the fact our current bank regulators simply do not know what they are doing. Ask them and you’ll see.

Finally, for someone from a country suffering murdering inflation, Venezuela, it is a real shocker having to read highlighted in FT: “Owning a printing press, the BoE faces no funding constraint”

@PerKurowski ©

The two you know what on bank regulations that Martin Wolf and so many more believe should never be names

Sir, Martin Wolf, holds that the sackluster results of the s between 2007 and 2016, is “the product of a misdiagnosis of the crisis as mainly fiscal, of asymmetrical macroeconomic adjustment, and of obscurantist opposition to fiscal stimulus, even at a time of negative real interest rates on long-term borrowing.” And he argues, “making the eurozone prosperous is indispensable... [and that] The priority is a practical plan for widely shared economic growth”, How Europe should respond”, July 6.

But, again, not a word about the fact that what created the crisis was excessive bank credit exposures to what was perceived or decreed safe, like AAA rated securities, and sovereigns, like Greece. And not a word about the impossibility of achieving prosperous shared economic growth, with regulations that provide banks serious disincentives to lend to “risky” SMEs and entrepreneurs.

Clearly in Wolf’s world, on bank regulations, there are two things that shall not be named.

One are the distortions in the allocation of credit to the real economy risk weighted capital requirements for banks produce; and the other is that those requirements do not make bank systems safer, as what is perceived ex ante as risky never ever causes the build up of dangerously excessive bank exposures.

Wolf argues that the best way to preserve the EU is by making it a desirable place of refuge and not a prison.

I agree but, if such desirable refuge is based on offering safety, to the exclusion of daringness, then it will not remain a safe refuge for very long.

@PerKurowski