Monday, February 1, 2016
More ex ante perceived credit risk requires more capital – less ex ante perceived credit risk allows much less capital… that is the pillar of current bank regulations.
And that allows banks to leverage much more when lending to The Safe than when lending to The Risky; which means banks can earn much higher expected risk-adjusted returns on equity when lending to The Safe than when lending to The Risky.
And so banks do not any longer finance the riskier future, but keep to refinancing the safer past. If that is not short termism, what is?