September 10, 2012

Defining the purpose of banks, would be good regulatory behavior

Sir, Bradley Fried writes that when the Commission of Banking Standards resumes it work, it needs to look at the human behavior of the bankers, “Banks have to learn to compete on good behavior”, September 10. And he is more right than he imagines. 

Had for instance regulators been as perceptive about the behavior of bankers as Mark Twain, with his their wanting to lend you the umbrella when the sun shines and take it away when it rains, they would never have come up with such daft regulations as their capital requirements for banks based on perceived risk. Or, if they had still used perceived risks, then perhaps they would have set these totally opposite to the current ones, the lower the perceived risk the higher the capital requirement. 

But let us hope bank regulators also learn to compete on good behavior, and come understand that, when you regulate something, it is good behavior first to define its purpose.