If China abandons the risk weighted bank capital requirements, and the West does not, the West is lost.

Sir, Martin Wolf with respect to China quotes premier Li Keqiang stating: “We will reform and refine monetary and credit supply mechanisms, and employ . . . a combination of quantitative and pricing approaches . . . to guide financial institutions in increasing credit supply and bringing down the cost of borrowing”… [and that he] stressed the need to “ease funding shortages faced by private enterprises”, “encourage private actors to engage in innovation” and “attract more private capital into projects in key areas”. “The Chinese economy is stabilising” April 3.

In his book Money: Whence it came, where it went” (1975), John Kenneth Galbraith speculates on the fact that one of the basic fundamentals of the accelerated growth experienced in the western and south-western parts of the United States during the past century was the existence of an aggressive banking sector working in a relatively unregulated environment. He wrote, “Banks opened and closed doors and bankruptcies were frequent, but as a consequence of agile and flexible credit policies, even the banks that failed left a wake of development in their passing.”

And that hits the nail. Risk taking is the oxygen of any development.

The current risk adverse risk weighted capital requirements for banks that assigns a risk weight of 0% to the Sovereign, 20% to any AAA rated corporation, 35% to residential mortgages and 100% to the unrated citizens, like those entrepreneurs on whom a nation’s strength depends on, is the perfect recipe for a secular stagnation.

God make us daring!

@PerKurowski