Saturday, June 29, 2013

How dumb can we allow our bank regulators to be?

“Despite important progress in strengthening the resilience of the global financial system, some parts of the system remain in a state of incomplete repair. Some jurisdictions need to continue to improve the capitalisation of their banking systems.”

But, of course, not a word that it was them, and their chums at the Basel Committee who, with that mother of all bad inventions, namely the capital requirements for banks based on perceived risk, allowed the banks to explode their balance sheets on what was perceived as “absolutely safe” holding almost no capital; and completely ignoring the fact that all major bank crisis, no exclusions, have detonated because of excessive exposures to what was perceived as “absolutely safe”, but turned out not to be.

1.6 percent in capital, a 62.5 to 1 leverage when lending to Greece but 8 percent capital, five times less, a 12.5 to 1 leverage when lending to a German unrated entrepreneur. How dumb is one allowed to be?

These regulators should all be sent home… disgraced... and paraded with a dunce cap, a cone of shame, on their heads.