June 25, 2013

Current bank regulators are so dumb… and FT’s journalists do not even seem curious about it

Sir, Evelyn de Rothschild ends her “Banking must pursue the holy grail of confidence”, June 25, with what amounts to a blistering indictment of all involved writing: “To maintain its global stature, it is vital that Britain’s financial sector be understood to have rules and regulations that are effective deterrents of bad behaviour, but that also promote the dynamism our economy needs. To achieve this requires a transformation in skills and ethics from bankers, regulators and politicians”.

And I fully agree, but, the list of those who require transformation should also include financial journalists… That, because it is important that the financial sector is covered by journalists capable of questioning and not prone to get derailed by thoughts like: “No, that can’t be, the regulators can’t be so dumb”.

Because yes, and as I have explained in hundreds of letters, our current bank regulators have been unforgivable dumb.

Since ex ante perceived risks are already cleared for by banks by means of interest rates, the size of exposure and other terms, there is absolutely no reason to clear again for exactly the same perceptions, in the capital requirements for banks. But that is what the Basel Committee mandates, and that produces a distortion which endangers the real economy and the financial sector.

And yet, since your journalists cannot seem to muster even the curiosity to ask the regulators for an explanation that counters my argument… I must conclude they are… well you tell me!