Will there be a real ECB audit of European banks, or just another nail in the coffin of a lost generation?

Sir you write: “By some accounts [the ECB audit] is expected to reveal that eurozone banks need between €50bn and €100bn”, “ECB needs help on its big bank audit” November 4.

No! That would be what European banks might need if they are just to survive, treading water, refinancing some of Europe’s at least for the time safer sovereigns. But, if banks are going to help to put Europe’s future on their books, like loans to medium and small businesses, entrepreneurs and start ups, then they need new regulations, and many times that amount of capital.

Frankly any ECB audit that does not also include understanding and calculating what also needs to be on European bank balances, will just amount to another nail in the coffin of a generation of young Europeans, lost by an insane and extremely risky regulatory risk aversion

And Sir, FT, for whatever reasons, withholding the truth, shares the responsibility for that tragedy.

We did not have a crisis because of a general lack of bank capital!

Sir, Tony Jackson discusses the “Basel struggle to put bank capital into perspective” June 27. In doing so he evidences how he and most others discussants tend to forget that bank crisis does not result from lack of capital but by the banks doing the wrong type of lending. Suppose all the banks in a nation had 100 percent capital and then lost it all lending to some sovereign, like Greece, would that mean that the taxpayer would have no losses? How do you separate the taxpayers´ wellbeing from the citizens´ wellbeing? Let us never forget that at the end of the day, it is the quality of the lending of banks that matters the most, not their capital.

My point has all the time been that whenever regulators act like risk managers and set different risk-weights for different lending, which will effectively mean different capital requirements on different lending, they are effectively interfering in such a way that will guarantee that the quality of the lending will be worsened. We did not have a crisis because of a general lack of capital we had a crisis because for some type of lending the regulators authorized basically no capital at all.

From a nanny we should only expect she cares for the risks perceived, but, from our regulators we have the right to expect they care for the risks that are not perceived.