Barclay’s has and projects leveraging its equity 45-35 to 1 times. Would not 10-15 to 1 be sufficient?

Sir, I refer to Patrick Jenkins and Daniel Schäfer’s “European banks move to bolster equity level”, as well as to The Lex Column note on Barclays, July 31.

Both mention the current leverage ratio of 2.2 percent of Barclay and the recent goal of 3 percent established by global regulators.

Those leverage ratios, translated to usual historic equity leverage indicators, those used in the pre-risk weighting days of the Basel Committee, would be 45 to 1 and 33 to 1 respectively.

Sincerely, do you not believe these leverages to be somewhat on the high side? Would not leverages between 10 and 15 be more than sufficient?

Lex holds that having to move from 2.2 percent leverage ratio to 3 percent “has delayed the date when Barclay’s return on equity will beat its 11.5 per cent cost of equity by a year to 2016.”

And that also begs the question whether shareholder would not be happy with a lower return of equity, if that came hand in hand with much lower assets to equity ratio?

Lex, explain why you consider a straight leverage ratio inferior to a risk-weighted assets ratio?

Current capital requirements for banks based on perceived risks using risk-weights allow banks to leverage more the risk adjusted margins when lending to “The Infallible” than when lending to “The Risky”; which means making a higher expected return on assets when lending to “The Infallible” than when lending to “The Risky”; which means that “The Infallible”, those already favored by markets and banks will be even more favored, while “The Risky”, those already discriminated against by banks and markets, precisely because they are perceived as “risky”, will be even more discriminated against.

And that of course creates the danger of excessive exposures to those of “The Infallible” who do not turn out to be really infallible, precisely those who have caused all major bank crises in history, as of course “The Risky” have never ever done that; in this case aggravated by the fact that bank then will have extremely little capital.

And that of course impedes the banks completely to perform their social function of helping us to allocate economic resources as efficiently as possible.

And so LEX, please explain to us why, in your column of February 27, you consider a straight leverage ratio inferior to a risk-weighted assets ratio?

And if you absolutely want to risk-weighed, because you cannot refrain from interfering, then why would not the capital requirements for banks for exposures to “The Infallible” be slightly higher than for exposures to “The Risky”, as all empirical data suggests?