August 29, 2013

Scary stuff! Mark Carney’s speech evidences he still knows too little about the real economy.

Sir, Mr. Mark Carney, in his speech in Nottingham on August 29, 2013, which you commented on in "Carney toughens his dovishness" he said the following:

“The Bank of England has established a threshold for the capital base of the major banks and building societies after taking account of likely future losses, fines for past misconduct and prudent calculations of risk. That threshold, a capital base of 7% of their riskweighted assets and at least 3% of their total assets, must be crossed if the system is to be able to support and sustain the recovery”

And so Mr. Mark Carney, none less than the Governor of the Bank of England and the Chairman of the Financial Stability Board, believes it is ok to allow the banks to earn higher risk adjusted returns on their equity when lending to “The Infallible”, to the AAAristocracy, than when lending to “the risky”, namely the medium and small businesses, the entrepreneurs and the start-ups, because, as you should know by know, that is precisely what the risk-weighing of assets does.

With that he evidences again he has still knows to little about the needs of the real economy. For it “to be able to support and sustain recovery”, the “risky” risk-takers need to be offered access to bank credit in competitive terms. This is indeed quite scary stuff.