As is, with Basel III, borrowers perceived as “The Risky”, will get even more squeezed by the leverage ratio

Sir, you refer to the leverage ratio always remember this only sets a floor to Basel’s bank capital requirements based on perceived risks, “UK bank capital”, July 2. And in that respect I would beg you to avoid referencing to it as a “safety standard”, because increasing the minimum level of water in the bank capital room, will more surely drown those closer to the ceiling, those borrowers perceived as being “risky”, and that is not safe but dangerous to the real economy.

It is amazing how often we read bankers stating the problem that higher capital requirements for could force them to reduce their lending, but never about how higher capital requirements for only some borrowers, can limit their access to bank credit.

PS. You might enjoy the following very short Q and A session on our banks

Q. What is the first worst that can happen to our banks, excessive exposures to the risky?

A. No, the “risky” never poses any risk of excessive exposures, The first worst is when something considered as “absolutely safe”, and to which therefore bank exposures could be huge, blows up in their face.

Q. What is then the second worst?

A. That when the first worst happens, the banks would not have the capital needed to cover for the losses.

Q. But, if then regulators, by setting quite decent capital requirements for banks for holding what is perceived as “risky”, but almost nonexistent for exposures to what is perceived as “absolutely safe”, make it more likely that the first worst and the second worst come together… is that not sort of dumb?

A. Yes, indeed, I take it back. The first worst thing that can happen to our banks, are dumb regulators.