On the externalities of the Basel Committee´s bank regulations

Those perceived as belonging to The Infallible, like the sovereigns, the members of the AAAristocracy and the housing sector, benefit from very positive externalities derived from bank regulations, since because banks need to hold very little, almost no capital at all when lending to them, they get much larger loans at much lower rates.

Those perceived as belonging to The Risky, like medium and small businesses, entrepreneurs and startups, are hit with the costs of very negative externalities derived from bank regulations, since because banks need to hold much more capital when lending to them than when lending to the former, they need to make up for that competitive disadvantage when accessing bank credit, and so they get much smaller loans, at much higher rates, or no loans at all.

Those in society who are old, and whose only concern is the short term stability of the banks, in other words those who gladly sign up on the après nous le deluge objective, benefit from positive externalities, as short term, banks are expected to be safer.

Those in society who are young, and whose future wellbeing depends much on banks financing without distortions the real economy, so that the economy has a chance to grow sturdy and generate jobs, are hit with the costs of very negative externalities derived from bank regulations, because the differences in capital requirements based on credit risks alone, introduce a very dangerous and distortive risk aversion.

And we all suffer the very negative externality of having bank regulators who seemingly do not understand, and do not care one iota, about what externalities their regulations cause.

And in this respect we also suffer the externalities of a financial press much too much in awe of regulators so as to dare to call their bluff.

And in this respect we also suffer the externalities caused by political agendas that need to blame it all on the banks, markets and deregulations, and which cannot accept the possibility of regulators and bad regulations being responsible for the disasters.