Sunday, September 28, 2014

More than "The Voice" and "American Idol" we need a TV competition to elect better bank regulators.

There I was trying to dry my hands wringing them in some tepid air blowing from the round hole of an appliance, thinking about how much more efficient the flat whole hand reaching drier was, when suddenly I thought… if I were a bank regulator I would at least give Dyson’s engineering group a call to see what they would think I should do….

And from there my mind wandered of into thinking about how monumentally important banks are too our economy… and about how monumentally crazy we have been allowing some very few untested bureaucrats, who we know very little about, to draw up the regulations that defines much of the functioning of our banks all around the world…

And into thinking that the least we could have done was to set up a public competition to search for the best bank regulations, similar to that which awarded Brunelleschi the right to build the dome of the cathedral in Florence.

And into thinking that such competition should be televised, perhaps ‘The Regulator’, so as to better ascertain that the interests of all stakeholders in banks were represented, not just those bankers who just think of banks as profit making machines, and not just those risk adverse nannies who think of banks solely in terms of more sophisticated places to stash away money than mattresses…

And finally into sadly reflecting on that in such a competition, the Basel II and Basel III bank regulation drawings would not make it into the final 12, probably not even pass the early qualification round…

I could imagine the judges asking the members of the Basel Committee.

“Do you really believe ordinary bankers to be so dumb, so you must require them to hold 5 times as much capital (equity) when they lend to someone they know has a BBB+ to a BB- rating, or no rating at all, than when they lend to someone they know has an AAA to AA rating?

Or, are you really so dumb to believe bankers when they argue they should be allowed to hold only a fifth of capital when lending to someone who has an AAA to AA rating, than what they are required to hold when lending to someone with a BBB+ to BB- rating, or no rating at all? 

Don’t you know bankers already adjust to differences in credit ratings by means of interest rates and the size of exposure they are willing to take, for you to also require these to adjust the capital they need to hold… 5 times?

Don't you think this would utterly distort the allocation of bank credit to the real economy… with those having BBB+ to BB- ratings, or no ratings at all, getting much too little bank credit, and those with AAA to AA ratings getting much too much bank credit?”

And here, I could imagine the experts of the Basel Committee and their family members of the Financial Stability Board, becoming quite teary-eyed.

And I could hear the judges concluding: “There is no chance someone would want regulations which, in the name of what at best could seem like short term bank stability, discriminates against those who we in fact most need to have access to bank credit, the “risky”, like middle and small businesses, entrepreneurs and start-ups, those who might get us the next generation of jobs, favoring an AAAristocracy.”

And then I could hear another contestant auditioning: 

“We must of course start with asking ourselves what is the purpose of our banks and in this respect I suggest we remember John Augustus Shedd’s ‘A ship in harbor is safe, but that is not what ships are for’’’. 

And I could hear and see in front of me the judges standing up and enthusiastically applauding. 

And so I concluded…let a 1.000 regulation proposal’s bloom! And let us hope the final regulations can infuse our bankers with reasoned audacity, and not disable them with an extreme aversion to credit risk. Enough of this insane de-testosterone-mania! We send our kids to war but we don't allow our banks to take the risks we need them to take?