December 07, 2015

Sissy and dumb credit-risk weighted capital requirements for banks, make it impossible for Europe to stand tall

Sir, I refer to Wolfgang Münchau’s “Europe will stumble before it learns to stand tall” December 7.

Münchau opines that the problems of some European countries resulting from the inability to devalue and the influx of workers from abroad, in order to conclude in that “if there is to be another stage of integration [for Europe] there will have to be a phase of disintegration first”

Sir, independently from those two important problems, let me assure you that no country can learn to stand tall, with regulators who give banks huge incentives to make their profits with what is perceived as safe, and to stay away from what is perceived as risky.

If you keep allowing crazy bank regulators to respond to their own small minded risk apprehensions when regulating your banks, Europe will not only stumble, it will fall.

Risk-taking is what keeps economies moving forward… and banks are in the frontline of that risk-taking. Do not now require the widows and orphans to substitute for the banks.

Again I dare anyone associated with the Basel Committee for Banking Supervision and the Financial Stability Board to debate publicly my ever-growing list of issues and concerns.

Why the thundering silence on the distortion in credit allocation the credit risk weighted capital requirements cause? John Kenneth Galbraith suggested an answer with his “If one is pretending to knowledge one does not have, one cannot ask for explanations to support possible objections.”

@PerKurowski ©