Spain, Europe, America, should not bank credit go to the most profitable projects, those that generate jobs and growth? It does not!

Sir, I read Sebastian Mallaby’s “Spain is in need of urgent repair”, November 21, and though I agree with much there said, it does not even mention the urgent need for bank credit to go to the most profitable projects, to those that generate jobs and economic growth. 

Currently and for the last decade that it does not! Overly frightened bank regulatory nannies, caring not a iota about the purpose of bank credit, decided to allow banks to hold much less capital when exposed to “The Infallible” than when to “The Risky”.  And that signifies of course that banks will be earning much higher expected risk-adjusted returns when lending to The Infallible than when lending to “The Risky”. 

As an example, if any European bank wants to lend to a small businesses or an entrepreneur it needs, according to Basel II, 8 percent in capital and can therefore leverage 12.5 to 1. But if that same European bank lent instead to a sovereign rated like Greece was recently, it could do so holding only 1.6 percent in capital, for a mind-blowing 62.5 to 1 leverage. 

If Spain, Europe, America want to have a real chance to get out of this monumental financial imbroglio they find themselves in, they need to get themselves a complete new set of bank regulators who also care about growth and jobs. 

I do not live in Europe but, if I did, I would sure be part of an Occupy the Basel Committee for Banking Supervision movement… and frankly if I lived in Spain I would be demanding some relief in the capital requirements for banks on exposures that have a special potential to create jobs for the young.