January 23, 2012

For fixing finance, start by getting rid of the official risk-weights

Sir, when on markets´ and bankers´ natural risk adverseness, you stack on regulators´ risk adverseness, applying Basel risk-weights, you get too much risk adverseness, which naturally results in excessive exposures to what is perceived as not risky and equally dangerous underexposures to what is perceived as risky… precisely what has caused the current crisis. This is what unfortunately Mr. Martin Wolf cannot or does not want to understand.

When in “Seven ways to fix the system´s flaws”, January 23, Mr. Wolf calls for more bank capital, suggesting a leverage of ten to 1, he just ignores the fact that the higher the capital requirements, the larger will be the distortions produced by the perceived risk discrimination that result from the use of official risk-weights.