Friday, January 2, 2015
Intuitively bank regulators think “risky is risky and safe is safe” and impose on banks credit-risk-weighted capital (meaning equity) requirements… more risk more capital – less risk less capital.
But then, in the hope of provoking a better and more deliberate decision, I sit down with them and explain:
First, that what has always turned out really risky for the bank system, has never ever been something perceived as risky, but always something that ex ante was perceived as absolutely safe but that, ex post, turned out to be very risky.
And second, that discriminating this way for risk already perceived by bankers, and already cleared for through interest rates, size of exposures and other terms, dramatically distorts the allocation of bank credit to the real economy.
And they say: “Yes, you are entirely correct Per”… but still insist on doing the same… How come?
At what moment does intuition turn into an overpowering prejudice that blocks all deliberate decision making?
Have anyone of you who participated writing in “Think-ing” edited by John Brockman any idea of how to break through intuitions when these are too powerful?
I appreciate all the help I can get… as these regulations have introduced a very faulty and extremely dangerous risk aversion that is really messing up all the economies of the Western World. These regulations are stopping our banks from financing the risky future by keeping them busy profitably re-financing the safer past
I also read the following on the site of Edge.org founded by John Brockman:
“To arrive at the edge of the world's knowledge, seek out the most complex and sophisticated minds, put them in a room together, and have them ask each other the questions they are asking themselves.”
And that makes me want to ask anyone of you about when complex and sophisticates minds, put together in a room, could turn into a dangerous mutual admiration club?
I say this because there are such monstrous errors in these bank regulations that could perhaps only be explained by the possibility that no one dared to ask the questions… as these had to reflect too badly on a member of the club
Thanks… and best regards