In much current banking is just an intimate communistic relation between bank labor and the State

Sir, Karl Stenberg In “Karl Marx would have been proud of the City’s bankers”, November 11, writes “Banks’ most important domestic function is to channel saver’s money to business for investment”.

Precisely, and precisely that is the problem with current bank regulations. When regulators set different capital requirements based on perceived risk, more risk more capital, less risk less capital, to a very large degree they preempted with their own biases, how the banks were going to execute that resource allocation. 

Before these discriminating regulations banks channeled the funds based on how much they expected the borrowers to produce a risk-adjusted return on equity for them. Now, it is based on how they expect a particular borrower to produce a risk adjusted return on the particular equity banks need to hold when lending to him. 

And therefore, since lending to “The Infallible” allows banks to hold much less equity than lending to “The Risky”, banks naturally channel all their lending to “The Infallible” “The Party Members,leaving “The Risky”, “the plebeian”, like the small businesses and entrepreneurs, out in the cold. 

By the way, when Sternberg says “Karl Marx would have been proud”, he is much more correct than he imagines. For instance, when banks lend to the infallible sovereigns, thanks to the regulators, "the party bosses", they do not need to hold any capital at all, and so in that there is absolutely no capital or shareholders involved, it is just an intimate affair between bank labor and the State.