September 12, 2013

Sir Bank Regulator, excuse my bluntness, is that not really fucking dumb?

Sir, there is a question bank regulators really hate being asked, and it goes like this:

Sir Bank Regulator, you must know that when banks are allowed by you to hold “ultra-safe” assets against much less capital than what is required of them when holding “risky” assets, they do earn much higher risk-adjusted return on equity on the safe assets than what they earn on the risky.

And that of course means that banks will lend too much at too low interests to “The Infallible”, like sovereigns, housing and the AAAristocracy, something which in itself is risky for the banks; and too little, or nothing, at too high interests to “The Risky”, like the medium and small businesses, the entrepreneurs and start-ups, something which is equally risky for the real economy, and for the banks.

And so, Sir Bank Regulator, excuse my bluntness, but is that not really fucking dumb?

And when I have asked regulators what’s above (with only two exceptions and who I do not want to name, because that could make life difficult for them with their colleagues) they all go away, as if I have insulted their intelligence… something which I really don’t have to do, since, as I see it, they are with gusto doing it to themselves.

Sir, and now again it is you Sir of FT. My question on capital requirements for banks based on ex ante perceived risk, only reinforces what Satyajit Das so well concludes in his “Post-crisis policies offer only chronic stagnation” September 12, namely that current “policies will engineer a chronic stagnation, requiring continuous interventions to prevent rapid deterioration”, and this as I would explain, when more safe-havens get to be dangerously populated and more of the risky but potentially valuable bays are left unexplored.

Am I supposed to use this f... language in this context? Perhaps not! Especially so when being a respectable grandfather, but, much more vulgar and harmful to our society, primarily to the possibilities of our young ones of finding sturdy employments in their lifetime, are these regulators.