Tuesday, October 2, 2012

A small question about bank regulators

In relation to bank regulations I have frequently found myself in need to comment that never ever has a major bank crisis resulted from excessive exposure to those perceived as “risky” (consult your Mark Twain), these have always resulted from excessive exposures to what was ex ante erroneously considered as “absolutely-not-risky”. 

But, between us... are not bank regulators supposed to know this very basic stuff? 

Where did all our current bank regulators, those who are writing up Basel I, Basel II, Basel 2.5, Basel III or what have you, study their Bank Regulations 101? Who checks the CVs of these appointees, or do they appoint themselves? Might they just have dropped in like any Chauncey Gardiner?

Chauncey: "If you do not like weeds use pesticide on them and fertilize the flowers" Basel Committee: "Ah, smart! If we want our banks to avoid risks, we need to pay them a lot in return on their equity to make them grow us the not-risks we so much desire"