May 02, 2011

You journalist who write about banking regulations, should you not find it somewhat curious at least?


If you as reporters on finance and bank regulations observe that someone has asked the global bank regulators in the Basel Committee some reasonable questions, for about a decade, and they have not yet been answered, would that not strike you at least as something curious?

The Questions:

Can you think of any major bank crisis that was caused by excessive lending or investments to what was perceived as risky? Is it not so that these crises have resulted from either unlawful behavior of bankers or excessive lending or investment to what was wrongfully perceived as not risky?

No and yes? If so can you explain why bank regulators have set the capital requirements for banks based on perceived risk? Ludicrous as it sounds, would then not totally opposite capital requirements than the current make more sense, like higher capital requirements for what is perceived as not risky, than for what is perceived as risky?

Since we know that the banks already consider the credit ratings when deciding whether to lend or not to a client, what amounts and at what interest rate, is it logical that the regulators t also use exactly the same credit ratings when deciding the capital requirements for banks? Is that not sort of double counting? If you consider good information excessively, does this not distort the value of that information?

We know that one of the prime objectives for our banks is to attend the credit needs of those small businesses and entrepreneurs that are so vital important for the creation of jobs, but who have no access to capital markets and who cannot even afford to get their creditworthiness rated by the agencies. If so does it make any sense to discriminate against the small businesses and entrepreneurs by means of forcing the banks to carry relatively much higher capital when lending to these than when lending to something with for instance a triple-A rating?

And now I ask you, if the Basel Committee and the Financial Stability Board are not able to satisfactory respond these simple questions, do you think they should have the right to dig us further down into a black-hole of regulatory complexity with their Basel III?

Per Kurowski
A former Executive Director at the World Bank (2002-2004)