May 03, 2016

Sovereign debt risk weightings system, which assigns a zero risk weight, needs more than overhauling. Throw it out!

Sir, soon 30 years after regulators decided with Basel I in 1988 that the risk weights for the “infallible” sovereigns were to be zero percent, Patrick Jenkins now writes: “finding a way to overhaul the absurd assumption that all government debt carries zero risk, is pretty fundamental for the future health of European finance” “Sovereign debt risk weightings system needs overhauling” May 3.

Boy is he lost! The question is not whether “all” governments should carry a zero risk, but whether any government should carry a higher risk weight than those citizens that represent whatever strength the sovereign has, and that now are risk weighted at 100 percent.

Anyone who thinks that banks should be able to leverage more their equity when lending to sovereigns than when lending to citizens, must believe government bureaucrats know better what to do with other peoples’ money, than SMEs and entrepreneurs with their own money and with what they owe, and so they must therefore be statists.

Sir, I am amazed how many statists there seems to be at the Financial Times.

@PerKurowski ©