Andrew Bailey, and what about the highly irresponsible conduct of bank regulators?

Sir, I refer to Andrew Bailey’s “Irresponsible conduct carries consequence in British finance” February 23. I agree with all but, what about the regulators?

Bank regulators decided that lending to those perceived as risky, from a credit risk point of view, required banks to hold much more equity than lending to those perceived as safe. That was an extremely irresponsible thing to do.

Not only did it mean that lending to the safe then generated much higher risk adjusted returns on bank equity than lending to the risky; something which completely distorted the allocation of bank credit to the real economy; but it also meant that banks would be standing there naked, with little equity, precisely where all major bank crises have always occurred, namely the terrain of excessive exposures to what ex ante was perceived as “absolutely safe” but that ex post can shows its other real colors.

Do I want to jail these regulators? No! We are living in different times. But I surely do not want to see these failed regulators also hide behind “an accountability firewall”, which permits them to keep on regulating… and sometimes even being promoted.

Let them just parade down our avenues wearing cones of shame.