Friday, September 2, 2016

Six easy questions that bank regulators should answer

What do you believe is the purpose of banks? Should it not have something to do with what like John A Shedd opined: “A ship in harbor is safe, but that is not what ships are for” 

If it includes to allocate credit efficiently to the real economy, why then do you distort that with risk weighted capital requirements for banks?

Voltaire said “May God defend me from my friends. I can defend myself from my enemies”. And so why do you base your capital requirements on what the bank perceives and not on what it has little chance to perceive?

Why do you give the AAA–AA rated a risk weight of 20% and the below BB- rated one of 150%? Do you really believe bankers could create excessive dangerous exposures to what ex ante was perceived a below BB-rated?

Why must the bank in my state hold more capital when lending to a local SME or entrepreneur, than when lending to, for instance, the German government?

By the way, is not the risk weights of Sovereign = 0% and We the People = 100%, an outrageous example of a runaway statism?

Why do you want to impose risk aversion in the Home of the Brave?