Current capital requirements for banks represent, for the risky real economy, the biggest source of deflationary bias.

Sir, Sir Samuel Brittan, in “Forget trying to change Germany – or any other country”, April 5, in reference to what in his opinions are not sufficiently expansionary fiscal and monetary policies, for instance by Germany, writes that “the whole system has a deflationary bias when the world least needs it”. 

I will not argue against that but, let me assure you that the current capital requirements for banks, which so odiously discriminate against all what is not officially perceived as absolutely safe, represents, with respect to the real economy, that in which “absolutely safe” is absolutely absent, the mother of all deflationary biases. 

And if we cannot, as Brittan holds do much about what countries do with their own fiscal and monetary policies, and need to treat those as exogenous events, accepting or not the Basel Committee nonsense, is indeed a quite endogenous decision. The only thing needed is for one or two finance ministers to ask their regulators to explain the why of those capital requirements, and then to be prepared to act decisively upon receiving  any mumbo jumbo answers.