The outsized bank revenues and the crash were caused by the monstrous huge leverages authorized by their regulators

Sir, Patrick Jenkins writes: “The outsized revenues and profits that banks and other financial groups made in the run-up to the crash, much of it inflated by mis-selling and manipulation, have given way to lower income” “Banks can become an engine of productivity instead of a brake” July 11.

Jenkins just does not get it. “The outsized revenues and profits that banks and other financial groups made in the run-up to the crash” were the direct result of regulators allowing banks to leverage their balance sheets tremendously. For instance Basel II of 2004 authorized banks to leverage 62.5 times to 1 if an AAA rating was present, and a lot of times more when lending to a “safe” sovereign. Had banks been allowed to leverage with all assets only 12.5 times, as Basel’s 8% basic capital requirement implied, there would not have been outsized bank revenues and profits, nor the crash. Capisci?

How could banks become an engine of productivity again? Stop discriminating against the “riskier” future and in favor of the “safer” present.

@PerKurowski