Nowadays, in banking, more important than the “Know your client” is the “Know your equity requirements”

Sir, it used to be that, beside general cost control, negotiating with the client was all a bank did to look for an acceptable return on its equity. Those were pre-Basel Committee days when any bank asset generated the same equity requirement.

Today the most important return on equity maximizing tool is the equity minimizing game. Today, more important than the “know your clients”, is the “know your equity requirements”.

And that is tragic. When we read Caroline Binham and Martin Arnold reporting on February 25 “Big banks face fresh capital clampdown” our heart goes out to all those legitimate credit aspirations of borrowers, which will be turned down, only because these generate for the bank higher equity requirements than other operations.

And Sir, the most amazing thing with it all, is that regulators are not even aware of how much their credit-risk weighted equity requirements distorts the allocation of bank credit to the real economy.