Why are regulators allowed to introduce odious and dangerous discrimination in the access to bank credit?
Banks used to apportion their credit between those perceived as risky, and those perceived as safe, based on (1) the risk adjusted interest rates and (2) their own portfolio considerations.
But that was before the Basel Committee for Banking Supervision’s credit risk weighted capital requirements.
Now banks apportion credit between those perceived as risky and those perceived as safe, based on (1) the risk-adjusted interest rates (2) the times their bank equity can be leveraged with those risk-adjusted interest rates and (3) hopefully, since those risk weighted capital requirements are explicitly portfolio invariant, their own portfolio considerations.
That means the risk adjusted interest rates “the safe” now can offer in order to access bank credit have been lowered, while the risk adjusted interest rates “the risky” have to offer in order to access bank credit have been increased.
That has leveraged whatever natural discrimination in access to bank credit there was against the “riskier” in favor of the “safer”.
That dangerously distorts the access to bank credit in favor of the “safer” present, like sovereigns, house purchases and the AAA rated and against the “riskier” future, like entrepreneurs; which means that our banks have no other social purpose to fulfill than being safe mattresses into which stash away our savings.
And all so useless because the only thing these regulations guarantee, is especially large bank crisis, caused by especially large exposures to something perceived or decreed as especially safe, and that turn out to be especially risky, while being held against especially little bank capital.
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