Monday, July 20, 2015

Mark Carney: Would the Magna Carta include risk-weights like these: King John 0%, AAA-risktocracy 20% and Englishmen 100%?

With the Basel Accord of 1988 (signed one year before the Berlin wall fall) bank regulators assigned a 0% risk weight for loans to the sovereign and 100% to the private sector. Some years later, 2004, with Basel II, they reduced the risk-weight for loans to those in the private sector rated AAA to AA to 20%, and leaving the unrated with their 100%.

That introduced a considerable regulatory subsidy for the bank borrowings of the infallible sovereign (government bureaucrats) and for those of the private sector deemed almost infallible. And that taxed severely the fair access to bank credit, of those deemed as risky, like SMEs and entrepreneurs.

Reading Mark Carney’s interesting: “From Lincoln to Lothbury - Magna Carta and the Bank of England” I felt like asking him what he would think the Magna Carta would have to say about these risk-weights.