To stand a chance, UK must refrain from imprudent risk-aversion and embrace some prudent risk-taking.

Sir, I refer to Martin Wolf’s “The UK’s future depends on improving economic performance” FT, April 15 2023. 

Wolf at the end of it recommended the UK to “reform its pension system, in order to generate more risk-taking capital, create dynamic new businesses.” Why does Wolf not even mention the UK's banks?

From mid 1979 until mid 1980 I practiced at Kleinwort Benson, one of the truly old English Merchant Banks that has since then, as so many others, gone down, disappeared by globalized Basel Committee bank regulations. With the risk weighted bank capital (equity) requirements, knowledgeable and experienced loan officers were substituted by creative equity-minimizing / leverage-maximizing (dangerously creative) financial engineers.

October 2009, in his Economist Forum, Martin Wolf published my: “Please free us from imprudent risk-aversion and give us some prudent risk taking” It began it with “There is not one single reason to believe the world would be a better place because our financial regulators provide additional incentives to those who, perceived as having a lower risk of default, are already favored by lower interest rates, or punish further those who, perceived as more-risky, are already punished by higher interest rates. In fact, the opposite is most likely truer”

Sir, when comparing government debt and residential mortgages with loans to small businesses and entrepreneurs, in terms of how nutritive they could be for the economy, it is not that outlandish to describe it as demand-carbs vs supply-proteins.

In “Credit Suisse: the rise and fall of the bank that built modern Switzerland” FT, March 24, Owen Walker and Stephen Morris write the Schweizerische Kreditanstalt, later rebranded as Credit Suisse, was born out of Alfred Escher’s determination to develop a railway network across the Alpine nation that would link northern and southern Europe. 

Sir, would that Alpine railroad have been built, with a Basel Committee imposing risk weighted bank capital/equity requirements with decreed weights 0% government, 30% residential mortgages and 100% risky projects? 

Would the banks in the City of London have reached the stars with such regulations?

Sir, dare ask Martin Wolf to dare answer that.

@PerKurowski