February 04, 2014

William Rhodes, worse than regulatory uncertainties is the current regulatory certainty.

Sir, William Rhodes writes that "many other countries are challenged by the weakness of bank lending to productive, employment-generating investments. The banks are in large measure constrained by regulatory uncertainties." "Major central banks must co-ordinate policy", February 4.

Wrong! Banks, when lending to productive, employment-generating investments are in large measure constrained by regulatory certainties... those that order banks to have much more capital against such “risky” lending than against lending to the less productive “absolutely safe”… those which thereby allow banks to earn much higher risk adjusted returns on equity when lending to something safe-not-productive than when lending to something risky-productive