Questioning Gillian Tett on the seventh and largest uneasy truth about the not cleaned up crisis

Sir, if banks are allowed to hold much less equity against what is perceived as “absolutely safe” than against what is perceived as “risky”, the banks will earn much higher risk adjusted returns on their equity when lending to “The Infallible”, like to some sovereigns, housing and the AAAristocracy, than when lending to “The Risky”, like the medium and small businesses, the entrepreneurs and start-up. 

And that as you of course will understand, causes banks to lend too much, at too low interest rates and in too lenient terms to “The Infallible”, and too little, at too high rates and in too strict terms to “The Risky”.

And so here is a question to Ms Gillian Tett. Does she believe those risk weighted capital requirements will lead to stability in the bank sector, or to the correct allocation of bank credit in the real economy?

If she says “Yes”, well then there is little I can do. Perhaps I should not expect more from an anthropologist. But, if she says “No”, then I would have to ask her on why she insists on ignoring this most outrageous “uneasy truth”, like when she describes how the “Insane financial system lives on post-Lehman”, September 13.

I say all this because the fact remains that the outright dangerous and so insane “risk-weighing” of capital requirements, has been, and still is, the fundamental pillar of all the Basel Committee’s bank regulations… and that mostly because that comprises a too uneasy truth for regulators’ egos to handle.