Banks should make their profits by being real banks not simply by leveraging what is “absolutely safe”

Sir, Martin Wolf ends his “Britain’s economy should not go back to the future” April 12, writing “The country needs institutions, public and private, better capable of generating widely share growth.”

He is of course right, but what he refuses to acknowledge is how much lousy bank regulations which impose different capital requirements for different assets based on perceived risk has distorted their capacity to allocate economic resources efficiently.

Currently banks are making their profits not as they used to, by taking smart risks, but by leveraging enormously what is perceived as "absolutely infallible", something which as recently seen is also an extremely dangerous experiment. Therefore what is most urgently needed, not only in Britain is for bankers to become real bankers again.

Wolf also mentions some failures in the Thatcher legacy identified by Professor John Van Reenen of the London School of economics. These are “rising inequality, excessive financial deregulation and inadequate investment in both human and physical capital”, and these are all closely connected to the mentioned capital requirements.

If you favor the access to bank credit of those already much favored, the haves, the history, the old “The Infallible” you are discriminating against those already much discriminated against, the have-nots, the future, the young, “The Risky”. And that can of course only lead to rising inequality and inadequate investments. 

But to call this dangerous excessive regulatory prudence an excessive financial deregulation, that is pure nonsense. As I recently wrote to you, Margaret Thatcher would never have approved of these so sissy capital requirements for banks.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has told me not to send him anything more about these “capital requirements”… he already knows it all, so he thinks.