Regulators like FSB’s Draghi, placed heavy weights, on what central bankers like ECB’s Draghi, now want banks to carry.

Sir, I refer to Patrick Jenkin’s “Question hangs over Draghi’s latest salvo on lending” September 8.

In it, with respect to the ECB purchase of asset backed securities, planned in order to free up banks’ balance sheets” so that banks lend more to business, Jenkins writes: “Selling the highest quality, least risky tranches… still leaves the issuing banks with the lower-grade portion of the securitization”.

But though Jenkins refers to the obstacle of rules on capital, he does not make clear that it is precisely those “lower-grade” tranches of the ABSs, and the lending to business, which is by far what is most affected by those capital rules and which, by the way, are not really “post crisis” rules but Basel II rules.

The irony is that Mario Draghi, when during many years the chairman of the Financial Stability Board, supported the very nonsensical credit risk weighted capital requirements for banks; those which now impedes him as chairman of the European Central Bank, to perform his duties. And of course, he does not want anyone now to notice how dumb he has been, since that would lead many to ask, “If so, why on earth was he promoted?” 

What a Shakespearian tragicomedy!