Small businessmen or entrepreneur, if only you knew, you would be raving mad at bank regulators.

Suppose you were an entrepreneur or a small or medium sized business with no credit rating as you cannot afford that. And then that in order to realize your dreams you should have been able to access a $400.000 loan at 7%, had the banks not been regulated, but now, only because they are regulated with the Basel Committee's criteria, the banks will only offer you $200.000, and this at 10%. Would you not be mad at this Basel Committee? 

Why $200.000 and not $400.000? Because the bank has to hold much more capital five times more when lending to you, correctly perceived as risky, which is why the bank charges you a higher interest rate, than when investing in or lending to something perceived as “absolutely safe”. And because bank capital is scarce, especially now, since some of the “absolutely safe”, like AAA rated securities collateralized with badly awarded mortgages to the subprime sector or Greece, and to which the banks held large exposures against which they were only required to hold a minuscule 1.6 percent in capital, ended up being very risky. 

Why 10% and not 7%? The banks are allowed to invest or lend to other those perceived as “absolutely safe” holding much less capital, five times less, than when lending to you, and so you surely must understand that you have to pay them much extra, in order for them to make the same expected risk adjusted return on equity. 

But why have I not been told this? Because the Basel Committee and the “absolutely safe” and the too big to fail banks that have been able to become too big to fail only because they were allowed to hold ridicule low equity have powerful friends, like the Financial Times who does not want to raise this issue on how regulators distort and discriminate, even though I have written soon 1.000 letters on it to its editor.

And now it is only going to get worse for you, “The Risky”, the commoner, since now with their Basel III decree, the Basel Committee, with liquidity requirements, is intent on favoring even more the aristocracy of “The Infallible”. 

A Financial AAAristocracy… in the US?

Bank regulators, who knows based on what right, created a financial aristocracy. It is composed by “The Noble Infallible” borrowers, like “The Noble AAAs”, and “The Noble Systemic Important Financial Institutions”, technically known as “The Noble SIFI’s” or, in more vulgar terms, “The Noble Too-Big-To-Fail banks”, “The Noble TBTF”.

When compared to the commons, like any unrated borrower, “The Risky”, like small businesses and entrepreneurs, and to smaller banks, like community banks, also known as “systemic un-important financial institutions”, the Financial Aristocracy has been endowed with immense privileges.

Just as an example, according to the Basel II orders, a bank can lend to a “Noble AAA” holding only 1.6 percent in capital, while if lending to any lowly member of ‘The Risky”, it needs to hold 8 percent in capital, five times as much!

The previous signifies of course that every dollar paid in risk adjusted interest rates by a Noble AAA represents five times in return on bank equity that the same risk-adjusted dollar in interests paid by the unrated "risky" commoner.

Of course to keep their rulers happy, bank regulators also named these as “The Absolute Infallible” and which, again according to the rulings of Basel II, signified that banks needed to hold no capital at all when lending to the Supreme Sovereign.

I can understand perhaps how this appointments of a Financial Aristocracy, or more precise yet an AAArisktocracy might have slipped through in Europe, but, in America, where its Constitution establishes: “No Title of Nobility shall be granted by the United States”... how on earth did that happen?

And though the United States in June 2004 formally committed to implementing the Basel II bank regulations; and though the SEC in April 2004 delegated supervision decisions to the Basel Committee,  there is surrealistically enough not one single mention of these regulations, or of the Basel Committee for Banking Supervision, in the 848 pages of the Dodd-Frank Act. And this though that Act makes reference to foreign organizations like the Extractive Industry Transparency Review (EITI). It would seem like someone somewhere, has been playing some dirty tricks on someone.

And, by the way, discriminating against risk-taking, in a land which became what it is thanks to risk-taking, in “the land of the brave”… You’ve got to be kidding!