March 04, 2015

Abusive regulators used a cat o’ nine tails whip on banks, and FT insists on calling that ‘light touch’

Sir, once again you refer to “light touch” bank regulations, “In defence of eyebrows and cosy fireside chats” March 4.

No Sir, the portfolio invariant credit risk weighted equity requirements for banks functioned, as effectively as a cat o’ nine tails whip, to keep banks away from exploring risky but productive bays, and to force these to dangerously overpopulate supposedly safe havens.

That bankers absolutely loved to be able to earn much higher risk-adjusted returns on equity on what is perceived as safe than on what is perceived as risky, is an entirely different matter, which has more to do with a design flaw of this particular cat o’ nine tails whip.

You quote Mark Carney on that BoE has managed to cause “42 cases of potential market abuse being referred to the Financial Conduct Authority”. Great, but I just wonder when the regulatory abuse of these equity requirements, those that so distorts the allocation of bank credit to the real economy, is also going to be reported to FCA.

Sooner than later, FT is going to be questioned on its silence on this whole issue and, hopefully, also be held accountable, one way or another.