October 23, 2009

The FSA got to be kidding

Sir Brooke Masters reported in “UK regulator sees growth in banks capital having extra capital” October 23, reports on the recent Financial Services Authority Discussion Paper on the Turner Review Conference and I could not find where the FSA said such thing. Nonetheless it might very well be so, in the very long run, but the road there is extremely difficult, and even the FSA warns that “too rapid increases in capital requirements will harmfully constrain lending to the real economy which is likely to have negative implications for the capital position of firms”.

But what saddens me most is that the only consolation for the real economy the FSA identifies is when following the previous quote they say “Capital enhancement through restraining cash bonus payments and unnecessarily high dividends will not have this harmful effect. Capital enhancement achieved by these means will contribute to whole system stability and confidence by speeding the pace at which exceptional government and central bank support measures can be withdrawn”.

Do they really mean that the real economy is now in the hands of reduced banker bonuses and reduced bank dividends? They’ve got to be kidding.

If there is anything that the real economy really needs now is for an immediate reduction in the capital requirements for the banks when lending to BB+ or below rated clients, there where the real economy normally lives, at least while the banks are rebuilding their capitals to cover for all those AAA rated operations for which the regulators only required 1.6 percent in capital.

Come on FSA, understand it, the banks are not are not even supposed to be into AAA rated operations… that should be the exclusive territory of widows and orphans.