July 21, 2014

As a sanction why not increase the risk-weight of Russia when calculating the capital requirements for banks?

Sir, Wolfgang Münchau writes that “Europe must impose financial sanctions on Russia” July 21, and among the possibilities for that he discusses the European Bank for Reconstruction and Development to stop lending to Russia.

Why not also, for the purpose of capital requirements of European banks, assign to Russia at least the same risk-weight currently assigned to Europeans small businesses and entrepreneurs, namely 100%. At its current credit rating BBB- Russia earns a 50% risk-weight, which means that banks are allowed to leverage twice as much when lending to Russia, than when lending to those who have done absolutely nothing wrong except being perceived as “risky”... something for which they already pay for dearly.

Besides, for a starter, why on earth would you want European banks lend more to Russia than to European job generators?