Though meteorologists announce rain, regulators allow banks to operate as if the sun shines.
Sir, Tommy Stubbington writes: “A coronavirus-linked credit rating downgrade by Fitch prompted speculation that Rome was headed for ‘junk’ territory” and “Italy is the most heavily indebted major eurozone country, and yet it can fund itself for free”; “Italy’s interest-free bonds enjoy strong demand as buyers bet on ECB support” October 14.
Mark Twain (supposedly) said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it looks to rain” and, if now revisiting banking, Twain could just as well opine: “A bank regulator is a fellow that allow banks to hold little capital when the sun is shining, so banks can pay high dividends and buy back stock, but wants banks to hold much more capital, the moment it starts to rain”
But, Twain, in the case of Italy, or any other Eurozone over-indebted sovereign, would not be entirely correct, because even though credit rating meteorologists now warn about heavy rains, EU authorities still decree sunshine, and even though Italy cannot print euros on its own, they allow their banks to hold its debt against zero capital.
Sir, does Stubbington ignore this? I’m not sure, but Upton Sinclair also held that “It's difficult to get a man to understand something, when his salary depends on his not understanding it.” That could perhaps apply to him… and, sorry, perhaps to you too Sir.
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