Regulators, why do you fear what bankers fear? Is it not what the bankers trust that which is really dangerous?

Sir, Miles Johnson writes: “Since their inception, financial markets have been driven by greed and fear. No matter how advanced technology becomes, human nature isn’t changing.” “AI investment can ape intelligence, but it will always lack wisdom” April 11.

I am not sure, as is I might prefer a reasonably intelligent artificial intelligence to regulate our banks.

BankReg.AI would begin by asking: What are banks? What are they for? An answer like “to keep our money safe” would not suffice, because for that a big vault in which to store our savings would seem a cheaper alternative than a bank. So BankReg.AI would most probably, sooner or later, be fed that not so unimportant info that banks are also supposed to allocate credit efficiently to the real economy. As a consequence the current risk weighted capital requirements concocted by the Basel Committee would not have even been considered because these very much distort the allocation of credit.

Then BankReg.AI would ask: What has caused all bank crisis in the past” After revising all empirical evidence it would come up with: a. Unexpected events (like devaluations), b. criminal behavior (like lending to affiliates) and c. excessive exposures to something that was erroneously perceived as safe. As a consequence the Basel Committee’s current capital requirements, lower for what is dangerously perceived as safe than for what is innocuously perceived as risky, would never ever have crossed BankReg.AI’s circuits. 

@PerKurowski