Sunday, October 5, 2014

And the Guinness Book of Records’ nomination for the most outlandish case of hubris should go to…

The Basel Committee and the Financial Stability Board... who with their credit-risk weighted capital requirements for banks thought they could act as risk managers for the banks of the whole world.

In 1999 I was afraid of something like that… and so in an Op-Ed then I wrote: The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”

Why regulators picked as the number one and sole objective for banks that of avoiding risks, ignoring entirely that of allocating bank credit efficiently in the real economy beats me… I guess it might be the result of that kind of incestuous intellectual craziness that can affect the not accountable to anyone members of a small mutual admiration club.

How crazy did they get? Well consider that while the regulators limited the banks to leverage their capital (equity) 12.5 times to 1 when giving small loans to SMEs, they allowed banks to leverage a mindboggling 62.5 times to 1 when investing huge amounts in AAA-rated securities or in lending to Greece… and so you tell me!