July 22, 2011

Global warming and bank regulations

Sir, Philip Stephen in “Spasm or spiral? The west´s choice”, July 22, analyzes the current problems of the west. His analysis would have benefitted from a better understanding of global warming, because anyone looking for evidence of it, would have noticed that, for instance in terms of bank regulations, the parallel that used to define a banana-republic has move northward and has now reached Basel. 

I say this because it is evident that only banana-republic styled regulators could have concocted regulations that allow banks to hold extremely little capital when lending to what is perceived as not-risky, as measured by the officially outsourced risk-Kommissars, the credit rating agencies, when compared to the capital required when lending to the “risky”. 

Any non-banana-republic bank regulator would have known that the perceived risks of default were already cleared for by the markets, and that these capital requirements would only exaggerate the reliance on some ex-ante perceptions, which would of course have calamitous consequences, sooner or later. 

And, of course, the politics in the west, are also of course acquiring the standard characteristics of the banana-republics.