Put an end to the Basel Committee’s and the Financial Stability Board’s absolutely crazy capital controls.

Channeling economic resources efficiently signifies channeling the next dollar of available funds to what produces the highest risk-adjusted return on equity, and that is one of the prime functions of a banking system. 

But banks have been impeded from performing such resource allocation efficiently because regulators, by means of capital requirements based on perceived risks, allow banks to earn much higher risk-adjusted returns when lending or investing in “The Infallible” than when lending or investing in “The Risky”. 

Like in roulette, it is like telling the banks they can earn much more on “safe bets”, red or black, that on “risky bets”, any number, even though from the start the expected result of all roulette bets are identical. 

And these de-facto Basel capital controls are, ever faster, dangerously overpopulating the safe-havens and equally dangerously, ever faster, causing the under-exploration of the more risky but also perhaps more productive bays.

As things goes, the western economies, at least the formal ones, are doomed to end up like penguins over-crowding the last AAA rated rock, and where they will suffocate because of the lack of that oxygen that risk-taking signifies.

In other words, Europe and America, in order to stop stalling and falling, need regulators who know the reasons of why our ancestors went to church and prayed “God make us daring!”