Sunday, June 3, 2012

The complaint I filed with the Federal Trade Commission.

Reference: Discriminatory bank regulations. 

We refer to your stated mission of preventing business practices that are anticompetitive or deceptive or unfair to consumers; in this case to the consumers of bank credit. 

We are perfectly aware that banks are in their full right to discriminate their lending conditions, like the interest rates, the amounts lend and other terms, based on the risk of default they perceive. But, what we find to be extremely unfair, even outright immoral, is for the bank regulators to determine that the capital requirements of the banks should also be based on those same perceived risks. 

That makes the access to bank credit, for those officially deemed as absolutely not risky, much more abundant and cheaper than would have been the case without regulatory intervention, and the access to bank credit, for those officially deemed as risky, like small businesses and entrepreneurs, much more scarce and expensive than would again have been the case without any regulatory intervention. 

Or, in words of Mark Twain, it will make the banks much more prone than they already are to lend you the umbrella when the sun shines, and to take it away when it looks like it is going to rain. 

And, besides, it all serves no good regulatory purpose, since all it does is to guarantee that the officially perceived safe havens become dangerously overpopulated. 

And, besides, there is no factual reason for this type of regulatory discrimination against perceived risk, because there has never ever been a bank crisis because of excessive bank exposure to what was ex-ante considered as risky.