Some are unfortunately the “Too Small To Be Invited To Basel Or Davos Banks”

Sir, Tracy Alloway reports on that “New rules hit small US banks ‘hardest’” February 9. She is right, but this has been since the imposition of credit-risk-weighted equity requirements, because:

Small banks, compared to big, attend proportionally much more the borrowing needs of clients who are perceived as “risky”, like local small businesses and entrepreneurs.

Small banks, compared to big, find it more difficult to engage in that financial sophistication, whether real or pseudo, used to dress up balance sheets as safer.

And therefore small banks, compared to big, must usually hold proportionally more equity, which makes it more difficult for these to produce competitive returns for their shareholders.

The small banks and their “risky” clients are never invited to discuss their problems with the Basel Committee or the Financial Stability Board…they are too small to be able to adequately feed the ego of regulators.

Small banks are never invited to Davos, as neither are their small “risky” clients.

What good work?

Sir Emilio Botín opines “Now we must build on Basel´s good work” September 16, as if the Basel Committee has done us any good. It undoubtedly created the current crisis by setting up a system of risk-weights for capital requirements that brought much confusion to the major financial markets.

When also reading Botín complaining about the possibilities of being discriminated against by levying additional capital requirements on the “too-big-to-fail” banks, one cannot but think of all the small businesses and entrepreneurs who have been unfairly discriminated by Basel, just because they cannot hustle up the triple-A ratings that would allow the banks to hold negligible capital requirements when lending to them.

Why is it so easy for big-bank-bankers to get a voice in the Financial Times but so hard for the small businesses and entrepreneurs who the banker´s should prioritize their lending to? FT´s “without favour” sometimes does just not ring true.

Right battlefield, wrong combatants!

Sir John Plender in “Rules will decide the New York vs London Battle”, April 7, considers that one reasonable safe bet is that a new Basel agreement… will provide the basis for a level playing field on capital and liquidity” though “where the balance will fall between the two financial centres on all this is anyone’s guess”. Are we going to fall again for the same trick? It was with the excuse of reducing regulatory arbitration between banking centres that Basel created the regulations that served as growth hormones for the big banks. It is not about New York against London, Basel might be the battlefield, but the combatants are the too-big-to-fail banks and the underdogs, the too-small-to-matter-to-the-regulators banks.