Why are regulators only concerned with banks not dying and not with banks living well?

Sir, Barney Jopson writes about Barney Frank discussing the impact of the Dodd-Frank Act and the future of regulation. “Architect of banking reforms says walls will not make the system safer”.

Frank, with respect of having joined the board of Signature Bank, and the resulting references to “the ‘revolving door’ between public office and the private sector” says:

“I reject this snarky premise that . . . I have somehow betrayed my principles by facilitating the operation of a bank that does what banks are supposed to do, which is financial intermediation”

Why is it only now Frank Dodd mentions: “what banks are supposed to do, which is financial intermediation”… in the Dodd-Frank Act there is not a word about that.

The stated purpose of the Dodd-Frank Act is: “To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end ‘too big to fail’, to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes”

Had that Act started out by making clear that the number one priority of a bank is to allocate bank credit efficiently to the real economy, and that this is best achieved by minimizing regulatory distortions, we would most certainly have a much better Dodd-Frank Act.

By the way, “Elizabeth Warren and her band of progressive Democrats” have shown no interest in that either. The fact that banks need to hold much more capital when lending to American unrated SMEs and entrepreneurs, than for instance when lending to some AAA rated sovereigns, has been of no concern to them… or to most other involved with regulations.

What would the Founding Fathers say about these regulations with risk weights: 0% Federal Government and 100% We the People

@PerKurowski

Mr. Barney Frank, when will you help stop that odious and stupid regulatory discrimination against “The Risky”?

Sir, Barney Frank the former chair of the House financial services committee, with relation to the Dodd-Frank Act and its implementation writes “Don´t panic financial reform is coming to America” April 4.

Mr. Barney Frank, lending your support to the pillar of current bank regulations, capital requirements for banks which are much lower for assets perceived as “safe” than for assets perceived as “risky”, this even though those perceptions are cleared for by other means, you are allowing banks to earn much higher risk-adjusted returns on equity when lending to “The Infallible” than when lending to “The Risky”.

And, as a direct result, “The Risky” need pay the banks much more than usual in order to make up for this regulatory competitive disadvantage.

And, as a direct result you are guilty of helping to increase the gap between the haves, the old, the history, “The Infallible” and the have-nots, the young, the future, “The Risky”.

And all for nothing as major bank crises never ever occur as a result of excessive exposures to what is perceived as “risky”.

And so if the Congress, in the Home of the Brave, with the assistance of bank regulators, in over 124 pages of assorted regulations, cannot understand and put a stop to this favoring of the access to bank credit of those already favored, “The Infallible”, and which thereby discriminates against the access to bank credit of those perceived as “The Risky”, and who even without these regulations already have to pay more because of those perceptions, then I do indeed believe it could be time to panic.

And I say this because it is precisely in troubled times like this, with growing unemployment, that it is so important that regulators help "The Risky", like small businesses and entrepreneurs, to have access to bank credit in the best possible terms, and not to fight against that!

The Dodd-Frank Act stays stubbornly on the wrong course towards the regulators no-risk Utopia.

Sir, Barney Frank writes in reference to the Dodd-Frank Act that “it allows financial institutions to perform vital of accumulating capital and making it available to the productive elements in our society, while minimizing the likelihood of irresponsible practices that contribute little to productive economic activity”, “We are on course to stop a new financial crisis” July 22. 

That is not true. As long as regulators keep indulging in that irresponsible regulatory practice of arbitrarily discriminating, by means of different capital requirement for banks, in favor of those perceived as “not-risky”, like the triple-A rated and the “decent” sovereigns, and against those perceived as “risky”, like small businesses and entrepreneurs, nothing has changed, since the course towards the regulator´s no-risk Utopia remains steadfastly the same.

PS. Loony bank regulations explained in an apolitical red and blue!

Where do you get the “more productive” from Mr. Barney Frank?

Sir, Barney Frank in “Greenspan is wrong: we can reform finance” April 4 writes “This combined with the new Basel III capital standards and the ability of regulators to insist on even greater capital, will ensure more prudent and more productive lending”.

One could argue that it might indeed lead to more “prudent” lending, though in this world of Potemkin credit ratings there is of course no guarantee of that. But, what seems a too gigantic intellectual leap is to believe the resulting lending to be more “productive”. There is absolutely not one single word in the whole Basel Committee for Banking Supervision literature that connects the capital standards to the term “productive”, as they are exclusively connected with avoiding defaults. The Basel capital standards are stooped in the banking traditions of providing the umbrella on sunny days and taking it back when it rains.

By the way, it is funny, or sad, to read a US Congressman Barney Frank referring to Basel as a sort of an essential element in bank regulations, and then consider that Basel is not mentioned even once in the over 2000 pages of Dodd-Frank Act.

Regulatory malpractice is not the same as laissez-faire

Sir Barney Frank the Democratic chairman of the House financial services committee argues “Why America needs a little less laissez-faire” January 14, and though he might be right on many points he would do well to also remember that our current financial turmoil-with-the-potential-of-chaos is in fact primarily the result of regulatory malpractice.

First, the minimum capital requirements based on differentiation of risks that were imposed on the banks by the regulators was the incentive for the banks to go from the originate and keep it on your balance to the current originate and distribute it to where it can’t be readily see mode.

Second, to believe that you could give some few credit rating agencies so much power without this sooner or later turning into the mother of all the systemic risks creation machine can only be explained with one word… naivety.Whether there were predatory subprime lenders or predatory subprime borrowers none of them would have gone anywhere had it no been for the credit rating agencies reinforcing the belief that risks are measurable and controllable.

And so, before we tackle and solve the above, the financial tsunamis will hit upon us time and time again.

It is not about to little or too much but about the right or the wrong regulation

Sir, Barney Frank, the chairman of the House Financial Services Committee says in “A (sub)prime argument for more regulation” August 20, that “the subprime crisis demonstrates the serious negative economic and social consequences that result from too little regulation”. He is wrong. The question should not be about too little or too much regulation but about the right or the wrong regulation. At this moment there should be no doubt that what leveraged the very local subprime mortgages problem into what seems to be a global crisis, was having empowered the credit rating agencies to explicitly or implicitly impose so much of their criteria on the markets, and that was ordered by the regulators.

I am not against credit rating agencies. Of course I will use them. But please unshackle the markets from having to use them.