October 01, 2012

Are banks becoming “leaner and meaner”? No! They are just becoming flabbier and flabbier.

Sir your reporters do not fail to surprise me. This week in “Leaner and meaner” October 1, Tom Braithwaite writes about banks “addiction to leverage” almost as if such addiction was independent of what bank regulations allowed them to leverage. 

The fact is that if you as banks are allowed to leverage, you better do it, since otherwise, while your wisdom has a chance to prove itself, you are going to be eaten up by other banks who do. 

And what does “leaner and meaner” mean in this context? As the flight towards the officially assets perceived as “absolutely not risky”, and for which therefore the banks are not required to hold much capital continues unabatedly, I can only see the banks becoming flabbier and flabbier.