December 21, 2010

The regulatory “after” is still heading in the same utterly faulty direction as the “before”.

Sir, your FT writers, in “Before and after: how the investment banks had to change shape post-crisis” December 21, write “The new global Basel III capital framework… will force banks to hold more capital against riskier activities”.

Yes, that is so, unfortunately, because what the bank regulators, and your writers, are still incapable of understanding is that since this crisis had absolutely nothing to do with what was considered as riskier bank activities, and for which the banks held more than sufficient capital, and all to do with what was perceived as not risky, and for which the banks were allowed to hold minuscule amounts of capital… we are still being set up for future systemic disasters by exactly the same deeply flawed regulatory paradigm.

Again, for the umpteenth time, first lesson of Bank Regulations 101… it is only what is perceived as not risky that has the potential of creating a systemic disaster.

When will we hear regulators talk about the importance of avoiding giving further incentives to what already has the immense incentive of being perceived as not risky? Please, FT, wake up!