Tuesday, March 10, 2015

What Europe most needs, Europe does not get, courtesy of their bank regulators.

Where would that liquidity injected by the ECB’s QE printing machine best be put to use in Europe? Since there is a limit to how much you can inflate demand by inflating the value of existing assets, without any doubt, what Europe most needs now is for that liquidity to flow by means of bank credits to SMEs entrepreneurs and start-ups, those who stand the best chance of producing something new to advance the European economies. 

But no, that is not going to happen, not as long as Europe’s bank regulators, Mario Draghi, Stefan Ingves and Mark Carney included, have anything to say about it. 

Those regulators dangerously blocked the fair access to bank credit to anyone perceived as risky from a credit point of view, because they do not dare European banks take the risk of lending to these. That they have done by means of portfolio invariant credit-risk weighted equity requirements for banks. 

Those equity requirements work like hallucinogens on banks, intensifying their perception of credit risk, making what’s perceived as safe look much safer yet, and what is perceived as risky so much riskier.

It’s insane. It demonstrates the Basel Committee, Financial Stability Board, ECB, Mario Draghi and so many more are way over their heads in Europe.

Look at ECB, European banks, pension funds, widows and orphans, all scrambling in order to lay their hands on the ever smaller inventory of safe assets, those which by means of negative interests, are now so "absolutely safe" they already guarantee you a minimum haircut.