Mr Zoellick, as the president of the World Bank, has an even more important issue to bring up in Pittsburgh.
Sir Robert Zoellick, the president of the World Bank, makes an inspired call for that “Pittsburgh should be a turning point for the poor” September 24, 2009.
Sadly, and though it should be the prime responsibility of a development bank to draw the attention to the issue, he completely ignores to mention that current bank regulations introduce an arbitrary regulatory bias in favor of the rich and the developed, and against the poor and the developing. This is so because the capital requirements are based on perceived risk of defaults as measured by credit rating agencies, and we all know where these perceived risks tend to live.
For example if a bank lends to an AAA rated sovereign it is currently required to hold zero percent in capital and if lends to an AAA rated private corporation only 1.6 percent, but when lending to a BB+ to B- rated sovereign or any unrated corporation it is required to hold 8 percent in equity. The significant different costs derived from these regulations, are to be added or deducted from what the markets would normally charge for financing different risk levels, and as a result these arbitrary regulatory interferences only makes the differences wider.
The World Bank should be the first one interested in putting on the agenda the fact that the world could have been better place had not some bank capital requirements empowered the credit rating agencies so much so that with their AAA could, over just a couple of years, mislead trillions of dollars over a precipice of financing a basically useless house price boom in the US.
The World Bank should also be the first one to remind the world of the fact that risk-taking is indeed the oxygen of any development and that therefore taxing it can prove truly disastrous for the world.
Sadly, and though it should be the prime responsibility of a development bank to draw the attention to the issue, he completely ignores to mention that current bank regulations introduce an arbitrary regulatory bias in favor of the rich and the developed, and against the poor and the developing. This is so because the capital requirements are based on perceived risk of defaults as measured by credit rating agencies, and we all know where these perceived risks tend to live.
For example if a bank lends to an AAA rated sovereign it is currently required to hold zero percent in capital and if lends to an AAA rated private corporation only 1.6 percent, but when lending to a BB+ to B- rated sovereign or any unrated corporation it is required to hold 8 percent in equity. The significant different costs derived from these regulations, are to be added or deducted from what the markets would normally charge for financing different risk levels, and as a result these arbitrary regulatory interferences only makes the differences wider.
The World Bank should be the first one interested in putting on the agenda the fact that the world could have been better place had not some bank capital requirements empowered the credit rating agencies so much so that with their AAA could, over just a couple of years, mislead trillions of dollars over a precipice of financing a basically useless house price boom in the US.
The World Bank should also be the first one to remind the world of the fact that risk-taking is indeed the oxygen of any development and that therefore taxing it can prove truly disastrous for the world.
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