April 12, 2011

FT, what is it that you see that I cannot see? Please tell me. I beg you!

Sir if you are capable of understanding that “a bank holding company might have an incentive to seek out riskier assets to compensate for higher equity requirements” how come you cannot understand that it is precisely the same to say that “a bank holding company might have an incentive to excessively seek out the assets that generate the lower capital requirements”, like the triple-A rated or the “rich” sovereigns, and which is what has caused this crisis. “An opening shot at bank reform” April 12.

When the Basel II regulators assigned a 20% risk for the triple-A rated and for slightly less well rated “rich” sovereigns, that meant that they allowed the banks to leverage 5 times more their capital, in order to obtain what was already risk-adjusted interests, when compared to what they could leverage if lending to the normal mortals, like the small businesses or entrepreneurs. Can´t you see it? Or is it something you see that I don´t? If so please tell me. I beg you.