Give more freedom to the commercial banks
Sir of course I agree with Frank Partnoy in that we need to “Do away with rating-based rules” July 9 (my over 100 letters on the subject to FT should attest to that) but I would not necessarily stop at picking a substitute like the risk assessments made continuously by the market and as Partnoy seems to suggest, but change the whole current system of minimum capital requirements that differentiates among risks and go for flat percentage capital requirements, that could be higher or lower depending on the conditions of the economy.
That way we put the responsibility for taking the financial decision squarely back on the shoulders of the market and the individual bankers by eliminating the almighty excuse impossible to avoid of “I just followed the advice of the credit rating agencies that my bank regulators appointed”.
The traffic signs set up around the world by the credit rating agencies indicating low risks and the minimum capital requirements for the banks hijacked the commercial banks. It is high time to free them since we do indeed need their cooperation in channelling our resources to more productive uses than the building of subprime-mortgages financial pyramids.
That way we put the responsibility for taking the financial decision squarely back on the shoulders of the market and the individual bankers by eliminating the almighty excuse impossible to avoid of “I just followed the advice of the credit rating agencies that my bank regulators appointed”.
The traffic signs set up around the world by the credit rating agencies indicating low risks and the minimum capital requirements for the banks hijacked the commercial banks. It is high time to free them since we do indeed need their cooperation in channelling our resources to more productive uses than the building of subprime-mortgages financial pyramids.
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