April 15, 2014

Yes, “whatever it takes”… as long as we do not have to admit our mistake

Sir, you write about Mario Draghi and Mark Carney, the past and the current chair of the Financial Stability Board, supporting asset securities, as a mean to “revive lending to small businesses still struggling to borrow from banks, “Bundled debt will quicken recovery”, April 15.

It would make much more sense to just reduce the capital requirements banks need to hold when lending to small businesses, based on the fact that “risky” small businesses, when compared to “infallible” sovereigns and members of the AAAristocracy, pose an almost nonexistent risk to the banking system.

But no, we can’t have that, because that would mean that they as regulators would have to admit to the mistake they made with the risk based capital requirements for banks and which they have managed to keep hushed up for many years now.

Yes Sir, the small businesses might receive more credit through securitization, but not at lower interests, the high margins will, as always, remain there in order to feed the securities packaging apparatus.

PS. Regulators, the capital (equity) you should require the banks to have is against unexpected losses, not against expected losses.