April 30, 2014

EU regulators, while stress testing banks, also measure the stress banks cause in the real economy.

Sir, Sam Fleming and Claire Jones report “EU regulators unveil details of bank stress tests” April 30.

Again these tests are too bank centered, and do not consider the stress bank lending, or the absence of it, causes in the real economy.

For instance if there is one single figure banks regulators should look for, that is how the lending to “the risky”, the medium and small businesses, the entrepreneurs and start-ups have evolved since they approved Basel II. Then they could perhaps better understand how the capital requirements for banks based on ex ante perceived risks distorts the allocation of bank credit.

Please, someone, anyone, inform the European regulators that there are no such thing as medium term “safe banks” when the real economy is stagnating.