How do you come up with a good bank strategy knowing current regulations are unsustainable and will change?

Sir, I refer to your reporters’ article on the fate of new chiefs grappling with problems at Barclays, Deutsche Bank and Credit Suisse “Banking trio seek clean sweep with investors” December 28.

For that capital that is supposed to allow banks cover for some unexpected losses, the regulators have imposed credit risk weighted capital requirements; more risk, more capital – less risk, less capital.

But, the excessive exposures that could endanger the bank system are never created with assets perceived as risky and always with assets perceived as safe.

But, the safer something is perceived, the larger is its potential to deliver unexpected losses.

But, to base some requirements for the unexpected on the expected credit risks, makes absolutely no sense.

But, since credit risk is about the only risk that is already cleared for by banks, with interest rates and size of exposure, clearing for it again in the capital, signifies that credit risks are given too much consideration and, any risk, no matter how well it is perceived, leads to wrong actions if excessively considered.

And so now we suffer from a catastrophic distortion in the allocation of bank credit to the real economy. Way too much credit to what is perceived or deemed to be safe, like in mortgages and to Greece, and way too little credit to what is perceived as risky, like to SMEs and entrepreneurs.

I am absolutely sure that this trio of bank chiefs, or at least some of those surrounding them, know that this kind of regulations are unsustainable and will be changed, hopefully sooner than later. Since any new regulations would most certainly entail holding more capital against all assets, something unwelcomed by their shareholders, the chiefs can’t even address this issue openly. It must certainly be no easy task to prepare for the ground moving beneath you.

@PerKurowski

There are many looking for the Holy Grail of the “vision thing”.

Sir, amen was all my initial response to Martin Wolf’s “Back to the future imperils Britain” March 26, but then, thinking about the need of the “vision thing” I remembered something I had written in my book “Voice and Noise”, in which I recounted some of my reactions while an Executive Director of the World Bank.

“Strategic Plan

Suppose the country was an island and that the only boat with which you could leave it for the next thirty years was scheduled for departure today. If you were an ambitious and hopeful 15-year-old who loved his country and that has just read the country’s Strategic Development Plan, would you stay or would you take the boat?

When we read these plans, we are left with two lingering doubts:

What’s in this plan that separates this country from all the rest? As it is obvious that all developing cannot occupy exactly the same place under the sun or find jobs in agriculture, what more is there to lead us—except for an “If it’s Tuesday it’s got to be Tanzania!”

Yes! All the basic necessary tools are included in the plan: macroeconomic stability, brushing your teeth, better governance, eating your breakfast. But, where are you really heading and where is that green valley that will motivate and inspire your efforts?”

It looks like countries share much more than what is believed too many of them seem to be looking for the Holy Grail of the “vision thing”… and Tanzania is not even an island.