September 19, 2016

Global and local inequality is much driven by dumb bank regulations. World Bank and IMF should do something about i

Sir, Branco Milanovic, with respect to “global inequality” writes: “While for national statistics and inequality measures, there is at least a national government that citizens can blame for high inequality, there is no comparable body globally.” “Putting a number on global inequality is long overdue" September 19

Oh no! For quite a lot of that inequality, I totally blame the Basel Committee on Banking Supervision. With its risk-weighted capital requirements for banks, which favor the access to bank credit of the “Safe”, the developed, the rich, the past, it is basically decreeing inequality.

The interesting aspect with that global inequality driver is that it also causes inequality on a local national level. Just try to figure out how many millions of SMEs and entrepreneurs, all around the world, have been denied access to bank credit because of this regulation.

And yes both the World Bank and the International Monetary Fund have a role to play correcting this.

The World Bank, as the world’s premier development bank, knowing that risk taking is the oxygen of any development, should send bank regulators clear signals to the effect that nothing is as dangerous as excessive risk aversion.

And the IMF, in charge of worldwide financial stability, should also tell regulators to stop being silly, since no major bank crisis has ever resulted from excessive exposures to something ex ante perceived risky. 

@PerKurowski ©