September 10, 2012

Give back to markets the role of risk management for the world which the bank regulators usurped

Sir, Robin Harding and Chris Giles when reporting on the current travails of central bankers they quote Donald Kohn of Brookings Institute saying “something deeper going on” referring to “something structural [that] has changed to hold back growth”, "Not so different this time", September 10. 

I guess you know what I am about to say. Yes! That “something deeper going on”, is the incredible discrimination in favor of what is perceived as “not-risky” and against what is perceived as “risky”, and which is present in the current capital requirements for banks based on perceived risk. 

Of course these central banker’s don’t know what to do, their instruments are all wrong, they have no idea of what the real market rates would be for the debt of their "infallible" sovereigns, if banks needed to hold as much capital than when lending to the more fallible citizens. 

Never before have bank regulators taken upon themselves the role of playing risk managers of the world. We need that role to be given back urgently, to the markets.