What would an old days’ bank failure look like with current deposit guarantees and capital requirements for banks?

Sir, John Kay writes about the topic of “other people´s money and one’s own”, and about the power that is “acquired with the savings of the… public” in order to speculate, “Boom, bust and broke trust mark the ages of finance” September 9.

Yes but he ignores those many who manage the relations between “other people´s money and one’s own”, like bank regulators.

Had not regulators allowed banks to leverage their equity and the support given implicitly by taxpayers 60 times or more when lending to sovereigns or the AAArisktocracy, the relations between other people’s money and bank’s own money would have been totally different. For instance when have one seen a hedge fund been able to leverage more than 10 to 1?

Try to imagine the size of an Overend Gurney bank failure in 1866, with current deposit guarantees, and current portfolio-invariant-credit-risk capital requirements for banks? Holy moly!

@PerKurowski

If prudent finance requires partnerships, why then are not regulators also made liable for bank losses?

Sir, when Basel II states that banks need zero capital when lending to an infallible sovereign and 1.6 percent when lending to slightly more suspect sovereign or private AAA ratings, what does that say with respect to shareholders of the bank? The answer is that for all practical purposes the regulators feel that for that business the shareholders are not really needed. 

And that is why when I read Martin Jacomb’s “Prudent finance requires a return to partnership” December 12, my first reaction was… do we then need credit ratings for the partners?, and my second, should the not bank regulators also be partners of the banks they regulate? They assign risk-weights too, don't they? 

Frankly, before thinking about how to create partnerships able to shoulder the too big to fail, we should be thinking to make shareholders at least 8 percent important, for any type of bank business.

A case for capital requirements for banks based on corporate organization and management´s stake

We outsiders, we taxpayers, we do not run the risks of the clients of a bank we run the risk of how the bank is managed. Therefore, much more than being concerned with the credit ratings of the clients of a bank, we need to concern ourselves with how the bankers of that bank react to those credit ratings.

In this respect John Kay´s “How trust in finance was carried off by the carpetbaggers” January 19, makes a splendid case for having bank capital requirements for banks depend on such aspects as to how much of the risks of the bank are shared by the management of the bank. As an example, for a bank operating as a full partnership or a mutual, the capital requirements could be 6 percent of all assets, while for a fully public bank 12 percent, with the in-betweens covered proportionally.

Gazprom in a public-private partnership?

Sir, in your “Putin’s piste”, July 7, you sort of allude that there might be a public-private partnership between Russia and Gazprom. Nonsense. That is just a public-public partnership that uses private sector flexibility to avoid the constraints that reason imposes on public spending. If Gazprom is anywhere like the Venezuelan PDVSA that I know, then whatever it does beyond their basic oil and gas exploration, production and refining business, is just a way to non-transparently lose or distribute some of their oil and gas profits previuosly made.