October 14, 2013

There can be no economic growth when banks do not finance the future but only refinance the past

Sir, Lawrence Summers in “The battle over the budget is the wrong fight” October 14 writes that “If even half the energy that has been devoted over the past five years to “budget deals” were devoted instead to “growth strategies” we could enjoy sounder economic finances”.

And, on the bottom of the page, Wolfgang Münchau in “Blame Europe’s policy makers for lost ground” writes that “If the eurozone had fixed the banking system as US did, it would now be on its way back to its pre-crisis growth.

The US has not fixed its banking system, it is only that Basel II bank regulations were not as completely implemented in the US as in Europe, and that the US banks are less important to the US economy than what the European banks are to Europe. 

Again, FT, for the umpteenth time, risk-weighted capital requirements for banks stops banks from financing the future and makes them only refinance the past. And, for God’s sake, how can you achieve sturdy and not just obese economic growth that way?

Unfortunately our bank regulators in the Basel Committee and the Financial Stability Board, caring so much about the banks and so little about the real economy, seem to be far to even understand that, and so much less able to correct it.