Mark Twain vs. The Basel Committee for Banking Supervision… Who do you think is right?

Mark Twain is supposed to have said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain” 

The Basel Committee though, with its credit risk weighted capital requirements for banks, evidently argues: A banker lends you the umbrella when it rains but want it back when the sun shines”. 

I mean, otherwise, as regulators wanting banks to hold capital against unexpected losses, would it require banks to hold much more capital when lending to “the risky”, those in the rain, than when lending to “the safe”, those enjoying the sun? 

I side a hundred percent with Mark Twain… because I have never ever seen a major bank crisis that has resulted from bankers lending too much to those they perceive as being in the rain, these have always resulted from lending too much to those they believe find themselves in the sun.

If you think that would seem to mean I believe those in the Basel Committee have no idea of what they are doing… you are absolutely right… I don’t.

It is tragic. The direct consequences of what the Basel Committee is doing, is that banks will now earn much higher risk adjusted returns on what is in the sun than on what is in the rain, and therefore only lend the umbrella to those they see in the sun, and stay away entirely from lending to those they see in the rain... like to all the "risky" SMEs and entrepreneurs, those  who could create the future jobs our grandchildren will need.