August 14, 2015

It is truly sad when financial journalists don’t care about asking the regulators… "What is the purpose of our banks?"

Sir, Gillian Tett, referring to swelling corporate cash, caused because of relatively low investments, writes that 56 percent of it is sitting in bank deposits accounts, among other because “nobody can think of anything better to do”, “The economy is infested with zombie corporate cash” August 16.

That should not be her or our main concern. What we really should worry about is what banks are doing with those deposits… like are they doing something productive, like lending to SMEs and entrepreneurs? That they don’t, only because regulators require them to hold much more of scarce bank capital when doing so. What regulators are de facto telling the banks is “lend the money to the governments, because that is what requires you to hold least capital”.

It is sad when regulators do not define the purpose of those they are to regulate, it is sadder when those who should ask regulators “why don’t you” don’t even care to ask.

How about asking the Basel Committee "Is lowering the borrowing costs for the governments the real purpose of our banks?"