August 16, 2013

Capital requirements for banks based on perceived risk, is an equal opportunities killer

Sir, Tim Hartford writes “The uncomfortable truth is that market forces – that is, the result of freely agreed contracts – are probably behind much of the rise in equality. Globalization and technological change favor the highly skilled”, “This is what sticks in the throat about the rise of inequality: the knowledge that the more unequal societies become, the more we become prisoners of that inequality”, “The idea of a free, market-based society is that everyone can reach his or her potential. Somewhere, we lost our way”, “How the rich are making sure they stay on top”, August 16.

That is indeed powerful depressing stuff, and I can’t say that I have even a fraction of the suggestions needed to get the world out of this predicament. 

But, one thing I am absolutely sure of. Capital requirements for banks, based on perceived risks that are cleared for by other means, and that so shamefully favor bank lending to “The Infallible”, the haves, the old, the past, those already favored by banks and markets, and thereby discriminates against “The Risky”, the not haves, the young, the future, those already discriminated against by banks and markets, does not help. Those regulations have nothing to do with a free market. Those regulations only potentiate the inequalities and represent an act of financial terrorism that strikes at the heart of the needs of a nation to take the risks to allow it to move forward.