January 11, 2016

Current bank regulators do not hope for the best nor do they plan for the worst.

Sir, Lawrence Summers concludes: “Policymakers should hope for the best and plan for the worst” “Heed the fears of the financial markets” January 11

But let me note that current credit risk-weighted capital requirements for banks are based on the opposite principle.

What would be the best? That the risky turn out to be safe. Do they hope for that? Absolutely not, they even prohibit that hope. They require the banks to hold more capital against what is perceived risky than what is perceived safe.

What would be the worst? That the safe turn out to be risky. Do they plan for that? Absolutely not! They allow banks to hold especially little capital when lending to The Safe.

@PerKurowski ©