Current risk weighted capital requirements are de facto regressive regulatory taxes imposed on the access to bank credit.

When interviewed by Dave Rubin, Don Boudreaux, defending a flat tax states:

“When you tax all income earning activities the same, then the relative prices of different types of labor services stay the same. With progressive taxes you create greater distortion in the economy and that makes us all a bit less wealthy than we would otherwise be”

Why is never a flat capital requirement for banks defended with the same impetus as a flat tax on income?

As is the risk weighted capital requirements for banks, which even though some leverage ratio has been imposed still operate on the margin, impose de facto different taxes on the access to bank credit.

To make it worse though in the case of taxes on income these are currently progressive, in the sense that they most affect those who are already by being perceived as risky have less and more expensive access to bank credit, these regulatory taxes are regressive.

PS. Why did Classical Liberals or Libertarians not speak up when, in 1988, with the Basel Accord, Basel I, the regulators risk weighted the sovereign with 0% and the citizens with 100%?

Current capital (meaning equity) requirements for banks are unethical, regressive, dangerous, stupid and promote inequality

Allowing banks to hold assets perceived as absolutely safe against much less capital (meaning equity) than against assets perceived as risky, allows banks to earn much higher risk-adjusted returns on bank equity when lending to the “absolutely safe” like the infallible sovereigns and the AAAristocracy, than when lending to the “risky”.

And that effectively hinders the fair access to bank credit of the “risky”… like that of the small businesses and the entrepreneurs.

And that effectively curtails opportunities and promotes inequalities.

And that odious regressive regulatory discrimination of the risky, as if these were not already sufficiently discriminated against, is unethical; and kills opportunities, which leads to ever increasing inequalities.

And that regulatory distortion is extremely dangerous since it impedes the banks to allocate credit efficiently, which means the real economy will, more sooner than later, stall and fall.

And finally it is all so useless and so stupid… because never ever has a major bank crisis resulted from excessive bank exposures to what was perceived as risky; these have all resulted from excessive exposures to what was erroneously perceived as absolutely safe.