“Futures Unbound” A Cato summit on bank regulations “Finance is about the future” Will the real questions be asked?
Current bank regulations require banks to hold more capital when financing what is perceived as risky than what is perceived as safe.
That means banks will be able to leverage more their equity, and the support they receive from the society, when financing what is perceived as risky than when financing what is perceived as safe.
That means banks will be able to earn higher risk adjusted returns on equity, when financing what is perceived as risky than when financing what is perceived as safe.
That means banks will no longer finance sufficiently the riskier future, they will mostly refinance the safer past.
And that silly credit risk aversion has been introduced in the Home of the Brave
To top it up, regulators have assigned a risk weight of zero percent to the sovereign and one of 100 percent to the citizens who give the sovereign its strength.
And all for nothing, since never ever has a major bank crises erupted because of excessive exposures to something ex ante perceived as risky, these have always resulted from excessive exposures to something ex ante perceived as safe.
I wonder if Cato is going to bring up the issue of how unelected technocrats, who have clearly never walked on Main Street, have thought it their right to distort the allocation of bank credit to the real economy.
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