A brief summary of my thoughts on banks and risks

Capital requirements for banks which are lower when the perceived risk of default of the borrower is low, and higher when the perceived risk is high, distort the economic resource allocation process. This is so because those perceptions of risk, have already been cleared for, by bankers and markets, by means of interest rates and amounts of exposures. 

All current dangerous and obese bank exposures, are to be found in areas recently considered as safe and which therefore required these banks to hold little capital. What was considered as “risky” is not, as usual, causing any problems. This is not a crisis caused by excessive risk taking by the banks, but by excessive regulatory interference by naïve and nanny type regulators. 

And, if that distortion is not urgently eliminated, all our banks are doomed to end up gasping for oxygen and capital on the last officially perceived safe beach… like the US Treasury or the Bundesbank.

Bank regulators have no business regulating based on perceptions of risks being right, their role is to prepare for when these perceptions turn out to be wrong. 

You do not regulate banks based on perceived risks but based on what banks might do with the perceived risks.

A nation that cares more for history, for what is has got, for the haves, for their baby-boomers, for "The Infallible", the AAA rated or sovereigns, than for the future, for what it can get, for their young, for the not-haves, for "The Risky", the small businesses or the entrepreneurs, is a nation on its way down.