Three reasons to break the bank-sovereign doom loop: Safety, market signals and fighting crony statism

Sir, Thomas F Huertas, when commenting on Isabel Schnabel’s “How to break the bank-sovereign doom loop” of August 29 presents good reasons for why impose some capital requirements on banks when holding sovereign debt, in order to make the bank system safer. “Bank holdings of sovereign debt need scrutiny” September 6.

But making the bank system safer is not the only reason for why that should happen. 

The fact that banks need to hold less capital against sovereign debt translates into a subsidy that: a. impedes the market to send the right interest rate signals on these debts and b. favors the sovereign’s access to bank credit over that of the citizens… something that could only be of interest to redistribution profiteers or those wishing to engage in crony statism.

The horrible problem regulators now have is, after painting themselves into a corner with the 0% risk weight how do you get out without detonating that sovereign debt bomb?

PS. In November 2004, in a letter published by FT I asked: “how many Basel propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector?” August 29,  I sent FT the following letter commenting on Isabel Schnabel’s article. As I am considered obsessed with the issue, it was of no interest to the editor.

@PerKurowski

On which road will our grand-grandchildren travel, on those with only driverless cars, with only human drivers, or in mingled ones?

Sir, I refer to Izabella Kaminska’s “Self-driving cars discover the limits of autonomy” March 29.

30 years from now there could be some roads where only driverless cars can travel, other in which only humans drive and some where both humans and driverless cars go. On which one will our grandchildren send their children to school?

As Kaminska hints at, the last one of these would probably be the one road “in which humans and autonomous vehicles will have to interact”.

But, for safety reasons, future parents will probably rather prefer to send their children on the driverless road, than trust the roads in which humans do their not always their best.

I would of course love for my descendants to keep their ability to drive cars. It is, or at least was such an enjoyment for me. But if I was nowadays told to take a horse drawn carriage down the road, I would not really know what to do, but neither I nor humanity would suffer too much from me lacking that piece of know-how.

Sir, as I recently wrote to you I visited a museum in Sweden that impacted me, the Blekinge Museum, not because it was not a museum of times gone by, it was a museum of my times gone by.

And much more dangerous than losing the ability to drive cars would, as I once also wrote you, be the “diminishing human fighting spirit” that the use of drones and robots could cause.

@PerKurowski