FSA, you’re on to something good. I hope all your European and American colleagues now follow suit.

Sir Brooke Masters and Patrick Jenkins report “UK banking watchdog eases reins on capital ratios” October 10, and refers to something I have been actively promoting for quite some time, namely the absolute need to get bank credit flowing again to those, who perceived as risky, have been locked out from it by the current capital requirements for banks based on perceived risk, like to small businesses and entrepreneurs.

Simon Gleeson, refers to the possibility of creating “a perverse incentive [for banks] to load up with the highest-risk corporate loans you can find, while completely ignoring that the real perverse incentives that have been in place, and which helped to cause the crisis, are those which favored banks to load up so excessively on assets officially perceived as absolutely safe. 

No, this is indeed a much welcomed development, about time, and I sure hope that other regulators now follow suit. 

Master and Jenkins qualify this though as “Banking regulators are gambling”. If they refer to regulators gambling on that bankers, if not molested by regulators, will be more able to efficiently allocate the resources in the economy than what government or regulation bureaucrats can, then that to me sounds like a very safe bet. 

Master and Jenkins also warn “if it goes bad, and a deeper recession follows, banks will have less equity to absorb the inevitable losses” Oh so scary! If a deeper recession follows then more of those absolute safe assets on the balance sheet of bank will go awry, and, in that case, I guarantee them that the lack of bank equity will be among the of their worries.