What are we to do with immoral and dumb dumb bank regulators?

Current bank regulators, with the Basel Accord of 1988, and further with their Basel II in 2004, decided to concoct and impose credit-risk weighted requirements for banks…more-risk-more-equity and less risk-less-equity.

That results in that bank can leverage more, and therefore obtain higher risk adjusted returns on their equity, and on the implicit and explicit support of taxpayers, when lending to “the safe” than when lending to “the risky”.

That constitutes a regulatory bias in favor of those who already are favored by bankers because they are perceived as safe, which results in an immoral and odious discrimination against “the risky”, those who are already naturally discriminated against by bankers.

And it is dumb because that distorts the allocation of bank credit to that real economy on which our pensions, our children and grandchildren’s future, and even our banks long-term safety depends upon.

And it is also dumb because never ever have major bank crisis resulted from excessive exposures to what was ex ante perceived as risky, these have all resulted from excessive exposures to what was ex ante perceived as safe but that ex post turned out to be very risky.

So what are we to do with these immoral and dumb dumb bank regulators? The Basel Committee and the Financial Stability Board, they don't even acknowledge that there is a problem.

PS. By the way, what are regulators really doing when they assign a zero risk weight to the government and a 100 percent risk weight to an unrated citizen? Does that not give out a very strong stench of communism?

Don’t you understand how utterly immoral and dumb current bank regulatory discrimination is?

Suppose a busybody ministry of economy came up with the idea that in order to strengthen the competitiveness of the nation’s private sector, and make really sure the firms employed the best and brightest, they were going to give special tax incentives for hiring students with grades over a specified level. 

What would happen?

All those who had not achieved that great level of grades would scream bloody murder and accuse the ministry for discriminating against them, for something which they were already being discriminated in the job market. And if by any chance the ministry would still be able to impose its nutty and odiously discriminatory plan… you would automatically begin to see some inexplicable inflation in the level of grades.

And that is basically what the risk-weighted capital requirements for banks concocted by the Basel Committee for Banking Supervision do:

First: These capital requirements odiously discriminate, for a second time, against those who because of being perceived as risky already get smaller loans and pay higher interest rates.

Second: Borrowers have always wanted to be perceived as safer than what they are… but now the lenders dangerously have a vested in sharing that interest in too... so the credit rating agencies will be pressured for better ratings from both sides.  

Third but foremost: By allowing banks to earn higher risk-adjusted returns on equity when lending to “the safe” these capital requirements distort the allocation of bank credit to the real economy

And fourth: It all serves absolutely no purpose, since never ever do bank crises result from excessive exposures to what is perceived as risky, but always from excessive exposures to something erroneously ex ante perceived as absolutely safe.

Immoral, useless and outright dangerous; what more do you need to repel Basel bank regulations?

The fundamental pillar of the Basel Committee's bank regulations is capital requirements with risk-weights based on ex-ante perceived risk.

The way those capital requirements favor the access to bank credit of “The Infallible”, those already favored by markets and banks, and discriminate against that of “The Risky”, those already discriminated against by banks and markets… is immoral.

Those capital requirements are also useless, because they give banks incentives to stay away from taking manageable risks on “The Risky”, those who never ever caused a major bank crisis, and to instead take unmanageable risk on “The Infallible”, those who always have been the origin of all bank crises.

Those capital requirements are also outright dangerous, as these completely hinder the banks from performing an efficient economic resource allocation.

What more do you need to repel them?