July 04, 2012

Without a banking sector capable of assuming risks, there cannot be a recovery

Sir, Richard Lambert ends “Britain’s banks are too fragile for political games” July 4, with “The economy cannot recover in the absence of a stable banking system: nothing can be more urgent than that.” He is correct, but neither can the economy recovery with a banking sector with capital scarcity that, as a result of the capital requirements based on ex ante perceived risk, is basically ordered to avoid the risks associated with a recovery of the economy. 

The way you are going, with those highly distortive capital requirements, all our banks are doomed to end up gasping for oxygen and capital on the last officially perceived safe beach… in the best case, for the UK, gilts, but also, perhaps, the US Treasury or the Bundesbank. 

And the Financial Times is not capable to warn about this?