Europe, urgently, fire Basel Committee’s members; and ask ECB to inject €1tn as equity in Europe’s banks

Sir, Simon Samuel’s mentions as a consequence of Basel III the possibility of a collapse in bank lending in Europe that would dwarf the €1tn or 2€tn of QEs that ECB might carry out, “Withering regulations will make for shriveled banks”, January 14.

Good for him, someone for the inner circle of bank regulators, is finally beginning to speak up on what needed to be said… sort of ages ago. Let us now see if FT also dares to live up to its motto “Without fear and without favour”.

That said the reality is worse than what Simon Samuels describes, because the credit shrinkage he refers to would primarily affect those Europe most needs to have access to bank credit, namely risky small businesses and entrepreneurs, "The Excluded" . And that because the “withering regulations” are still including the portfolio invariant credit risk weighted equity requirements for banks, which operating on the margin, excludes the risky in favor of “the infallible”.

What would I do? Throw the risk-weights out and hope that history forgets our stupidity. Impose a 10 percent equity requirement on all assets, and then, to get us from where Europe’s banks are, because of Basel I, II and III, to where they must be, have the ECB “offer” to subscribe all equity needed to meet those new requirements. ECB should of course commit not to use the voting rights of that bank equity and to resell for instance 10 percent of those shares per year in the market beginning in 3 years.

I have no idea whether that is legally feasible… but if it was my Europe and I could make the decisions, that is what I would probably do… as fast as possible. Sir any ECB-QEs, or excessive fiscal stimulus, before correcting what needs to be corrected in Europe’s banks, is just throwing money down the drain.

PS. Sir, if my Tea-with-FT blog post in November last year helped to push Simon Samuel to speak up against other members of their mutual admiration club… then I have been right insisting in sending you the letters you do not welcome or acknowledge.