August 06, 2015

Bank regulators are the most important pushers of shortsighted short-term capitalism

Sir, Sebastian Mallaby writes: “The US presidential frontrunner, the boss of McKinsey, and the chief economist of the Bank of England declare that capitalism is misfiring” and quotes Dominic Barton of McKinsey with: “the continuing pressure on public companies from financial markets to maximise short-term results”, usually at the expense of research and investment”, “Shortsighted complaints about short-term capitalism” August 7.

If companies cannot use investable resources, they should simply return those to the economy… and once there, the banks are the most important agents to recirculate those resources, to those who want to do something with these.

And that is where the real problem starts. Because now, with the current capital requirements for banks that are much higher when lending to what is perceived as risky than when lending to what is perceived as safe, regulators have de facto ordered banks to recirculate those resources to the old and existent economy, which is usually perceived as safer, and stay away from financing the future economy, which is usually perceived as riskier. And, if that is not short-termism, what is?