I bet you’d all be better bank regulators than those in the scandaliciously dumb Basel Committee!
Of course we would all like and benefit from the credit ratings providing us with more accurate results… but that is not really the issue.
If you were a responsible regulator, what would make you toss and turn at night, that the credit ratings are correct or the possibility they are wrong?
If your answer, as expected, is the second, then try to explain the current capital requirements for banks that allow for extremely little bank equity when the credit ratings determine there is very little or no default risk at all, and which therefore are betting it all on the credit rating always providing correct risk information. Loony eh!
As a result of this regulatory silliness, the current crisis left our banks with no capital, simply because they were not required to have any capital against what was ex-ante rated as “not-risky” but that “ex-post” could turn out to be very risky.
Would you have not been a better regulator asking instead for capital requirements for banks that covered the case of the credit ratings being wrong? I bet you would!
One of the biggest challenges we now face is finding a way to accept and internalize that the “expert” regulators appointed to such vital places as the Basel Committee for Banking Supervision, the global bank regulator, could really come up with so unbelievably unbelievable dumb regulations… Truly scandalicious!
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