Ever more complex finance requires denser and duller, bordering on brain-less, hard-headed stubborn bank regulators.

Sir, Tracy Alloway writes “If the institutions which create these [sophisticated financial] products cannot correctly asses their value, then what hope is there for us?”, “Ever more complex finance parts way with economic reality” May 3.

Indeed but it is worse than that… because what hope can we have that our bank regulators understand those products? In 2003, when Basel II was being discussed I told some hundred regulators during a workshop the following: “Let me start by sincerely congratulating everyone for the quality of this seminar. It has been a very formative and stimulating exercise, and we can already begin to see how Basel II is forcing bank regulators to make a real professional quantum leap. As I see it, you will have a lot of homework in the next years, brushing up on your calculus—almost a career change.”

The truth is that regulators did not know what they were doing with simple Basel II and they know of course much less with Basel III, which is about a hundred times more complex and technical.

And this should lead us to the truth of regulations… the more complex the issue is the more dumb must the regulators act, like refusing trying to understand it all, and stubbornly holding to some simple rules of thumb… like 8 percent of shareholder’s equity against any asset.

The role of the regulators is not to control the banks for the perceived ex ante risks, the expected losses, that is the job of the bankers and, if they can’t do that they should not be bankers. The role of the regulator is to safeguard against eventual ex post risks, unexpected losses, and since the unexpected cannot be calculated, they can for instance allow themselves not having any knowledge of calculus.

God save us from the hubris driven intelligent besserwisser spread-sheet equipped regulators trying to outsmart bankers.

Parade bank regulators down 5th Av, wearing dunce caps, so the next generations of them, know they will be held accountable.

Sir, Mr. William N Kring writes “Banks continuing to sabotage reform”, September 21. Indeed, of course, that’s their business.

But, the number one saboteurs of the much needed reforms are the regulators. By hanging on to their so misguided capital requirements based on ex ante perceived risk, as if their risk perceptions had not previously been seen and cleared for by bankers, they keep creating the regulatory muddiness which allows for the so much muddy lobbying by the banks.

What could banks do if for instance there was just one simple and transparent battle line, like an 8 percent capital requirement on any type of bank assets?

But that would also signify that the whole regulatory establishment would need to confess they were absolutely wrong, from beginning to end, when they with immense hubris thought they could be the risk managers of the world, and started to impose risk-weights, and which only distorted all common sense out of the allocation of bank credit to the real economy.

Damn them, make them parade down 5th Av, wearing dunce caps, so that next generations of bank regulators know they will be held accountable.