Who in his right mind can believe credits rated BB- are more risky to the banking system than credits rated AAA to AA?

Sir, on October 22 Gregory Meyer and Joe Rennison reported on FT’s front page “US regulators signal first moves to rein risks of high speed trading”. Timothy Massad, chairman of the Commodity Futures Trading Commission was quoted saying “he wanted to safeguard financial markets against algorithms going haywire” That is great, but who is going to guard financial markets from regulatory algorithms going haywire?

Anyone who dares to really enter and analyze the pillar of current bank regulations, the credit risk weighted capital requirements for banks, comes out not believing what he has seen.

For instance, in Basel II, a credit to the private sector rated AAA to AA was assigned a risk weight of 20 percent while a similar credit to someone rated BB- or less was assigned a 150 percent credit risk weight... meaning a 7.5 times higher capital requirements.

And I just ask, who, in his right mind, can believe credits rated BB- are more risky to the banking system than credits rated AAA to AA? Honestly, what could attract more excessive financial exposures?

@PerKurowski ©