June 06, 2012

Unions don’t work based on discrimination

Sir, you and others write about “Banking union and the euro’s future” June 6, without even referring to the disunion effect discriminatory capital requirements have. 

If you really want to start a banking union then you should start by allowing all banks to be required to have the same capital when lending to each other… and the same goes of course, for all lending to sovereigns. 

At this moment a Spanish bank needs for instance to hold much more capital when lending to Spain or to a Spanish bank that when lending to Germany or to a German bank, and that only stokes the eurozone fire.