Sunday, October 12, 2014

“Too defined and too encompassing to go wrong regulations” is riskier than “Too big to fail banks”

Mark Carney the Chairman of the Financial Stability Board, in his Statement delivered to the International Monetary and Financial Committee Washington, DC, 11 October 2014, makes no reference whatsoever to the distortions credit risk-weighted capital requirements have in the allocation of bank credit to the real economy. 

And so Carney at least, evidences he has not learned anything from this crisis, or that he absolutely agrees with the idea of banks dangerously overpopulating safe havens and withholding completely from exploring any riskier though perhaps of us more productive bays. 

As you can read, still not one single word about the purpose of our banks… banks just standing there, without any other purpose, seems perfectly all-right to him. 

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926

Mark Carney also refers to the fact that one of the goals of the Basel Committee is to set out its plan to address excessive variability in risk-weighted asset calculations. He seems still not able to understand that, the lack of variability in risk-weighted asset calculations, by leveraging the consequences of errors made in their calculations, is also a possible horrendous source of systemic risk.

Really how can someone worrying about too big to fail banks, simultaneously preach a one set of can’t go wrong regulations? What’s the difference between too big to fail banks and too defined to go wrong regulations?

In short Mark Carney, and the rest of regulators out there, have not been able to understand that even if their risk-weights are based on perfect risk perceptions, applying these to bank capital requirements is wrong, because these “perfect” risk perceptions should already be cleared for banks in the interest rates, in the size of the exposures and in the other terms that apply.

Mark Carney…and you other regulators out there… stop being so stubborn… you should not concern yourselves with the risk of bank assets, which is the concern of bankers. You instead must concern yourselves with the fact that the banks could perhaps not manage those risks… something that, as they say here in Paris, is pas la meme chose. 

You regulators you do not solve anything for us managing the risks of banks because you yourself then become our largest systemic risk with banks… and, I am sorry, but, I at least, see absolutely no reason to trust some central bankers to know what risks should or should not be taken out there in the real world, for my grandchildren to have a great future. And much less so when you all, with your Basel II, have already proven yourself to be huge failures.

Sincerely I find your hubris of believing yourself capable of being the risk managers of the world quite disgusting. 

Look around you… I would hold that capital requirements based on potential of job creation ratings, sustainability of planet earth ratings, and good governance and ethics ratings of governments, though distorting, would do so in a better directions than your credit ratings, which in fact promotes inequality and exclusion.