What do I, Per Kurowski, want with respect to the current bank regulations?

I want the current capital requirements for banks based on perceived risk of default concocted by the Basel Committee to be thrown out forever.

Why do I want that?

1st because these capital requirements ignore that the risk of default, as perceived, among other by the credit rating agencies, is already taken care of by the risk premiums charged by the markets and the banks, and so we end double counting for the same perceived default risk; which causes those who already are benefitted by lower interest rates, because they are perceived as having a low risk of return, to be additionally benefitted by having to provide a return on less capital; and punishes additionally those who already have to pay higher interest rates because they are perceived as “risky”, by means of having to provide a satisfactory return on more bank capital.

2nd because the more we strengthen the basic capital requirements like for instance going from a very wishy-washy 8 percent in Basel II to a more solid composed 7 percent in Basel III the more damage will the discrimination produced by the risk-weights cause.

3rd because the risk of default compared to many other risks we face, like climate change or a world with billions of young people with no jobs, is really a minor and almost innocent risk that is an integral part of an operating market, something which becomes even more apparent if we think about the possibilities of markets without defaults and which, of course, could only end up with the mother of the mother of all the too-big-to-fail banks.

4th because it is always dangerous to identify and empower a risk-assessment oligopoly of credit rating agencies, which will leverage whatever mistakes they make on their own or because they are captured.

5th because in order to go forward and not stagnate and fade away humanity always needs a hefty dose of risk-taking, and you can therefore not allow that the banks turn solely into mattresses, where to stash away your savings. To accept sending your children away to war where they could die but at the same time arbitrarily make it harder for young entrepreneurs to access the capital he feels he needs to take himself, and us, forward, does not seem like a reasonably balances proposition.

Why would they want to give it to me?

1st since the regulators have recently been reminded of the fact that all monstrous financial and bank crisis always occur because of excessive investments in what is perceived as not risky, the triple-A rated of each time, and never because of excessive investments or lending to like what is considered as not risky, that should get them thinking. Don’t you think so?

2nd because it is obvious that we need to give small businesses and entrepreneurs, of any age, more fair access to bank credit if they are going to have a chance to make something useful out of all that cash thrown on the economy by fiscal spending and quantitative easing. For your information, right now, the banks when lending to small businesses or entrepreneurs, because their Basel decreed risk-weight is 100 percent, need to have 5 TIMES as much capital than when lending to a triple-A rated client whose Basel decreed risk-weight are merely 20 percent.

And would that be all?

Absolutely not! If we are going to have global regulators, which we will need, it absolutely behooves us to make sure those regulators are chosen from an extremely diversified pool of talents, since the least we need is to allow for creation of incestuous mutual admiration clubs… like the Basel Committee is. Think of it, if the challenge of global climate change is placed into the hands of something like the current Basel Committee, we are all toast.

Are these extravagant wishes?

I don’t think so. Do you?