September 02, 2013

The Financial Stability Board, like the Basel to “minimize disruption”? Fat chance!

Sir, you write “the FSB should not shy away from making markets safer. But it should try to minimise disruption along the way”, “Making repos safe: Financial Stability Board seeks shadow banking rules” September 2.

Fat chance, neither the Financial Stability Board, nor the Basel Committee, care one iota about how they distort. Just look at how they so blithely ignore that their capital requirements for banks, which causes to provide the banks with different risk-adjusted returns on equity for different assets, has distorted all common sense out of the allocation of bank credit in the real economy.

And here, for the repo market, the FSB now wants to impose a minimum .05 percent haircut for corporate debt securities with maturity of less than a year – and a 4 percent haircut on longer term securities. Why the discrimination? In general terms of stability, what is wrong with long term debt?