May 29, 2015

FT, I’ve blown the whistle on bank regulator’s foul play many times. But Gillian Tett does not want to hear it. Why?

Sir, I refer to Gillian Tett’s “Finance needs to blow the whistle on foul play” May 28.

I have sure blown my whistle. On my TeaWithFT blog I have, with this, 141 comments directed to Gillian Tett over the years. Surely more than half of these have to do with the lunacy of bank regulators.

With their credit-risk-weighted capital (equity) requirements for banks, that favors lending to what is perceived as safe over what is perceived as risky (as if that would be needed) they manipulate and distort the bank credit markets… clearly foul play. And all that for absolutely no good reason, since all major bank crisis have only resulted from excessive exposures to what was ex ante perceive as risky but that ex post turned out to be risky.

Sir, could you please ask Ms. Tett, as an anthropologist, to explain why journalists like her give so much more credence to those who for unexplained reasons have been named bank regulators, than to ordinary bankers who at least have to compete with other bankers… or citizens like me?

For instance from where can a professional like Ms. Tett derive the notion that a Mario Draghi, just because he was named chair of the Financial Stability Board by some unknown bureaucrats, knows more about risk managements and how banks should behave than any ordinary banker or finance professional?

If simply stating: “I am the regulator” makes someone less prone to make mistakes or to behave badly than the one being regulated, and to have that nonsense believed by journalists, then we are definitively screwed.

PS. For instance, before the approval of Basel II, I loudly blew the whistle on the dangerous systemic risks of using credit rating agencies too much in bank regulations… both as an Executive Director at the World Bank and in FT. Nobody wanted to hear it  L