Thursday, May 15, 2014

When are small businesses going to ask regulators why banks need to hold more capital when lending to them?

Read Fed’s Chair Janet L. Yellen’s speech “Small Businesses and the Recovery” delivered at the National Small Business Week Event, U.S. Chamber of Commerce, Washington, D.C. on May 15, 2014

And then reflect that even though never ever has a bank crisis detonated because of excessive bank exposures to “risky” small businesses, nevertheless the regulators require the banks to hold much more capital when lending to them than when lending to the “infallible sovereign” the AAAristocracy or the housing sector.

And that means that banks can obtain much higher risk-adjusted returns on equity when lending to the “infallible sovereign”, the AAAristocracy or the housing sector, than what they can obtain lending to “risky” small businesses.

And that means that small businesses will have access to less bank credit, or to more expensive bank credit, only in order to make up for this competitive disadvantage imposed by regulators.

When are the “risky” medium and small businesses, entrepreneurs and start-ups ask for the why of this regulatory nonsense?