Sunday, January 13, 2013

The Basel Committee’s bank regulations, seen from the perspective of “Les Miserable”

Small and medium businesses and entrepreneurs, not rated or having a not-so-good credit ratings have been condemned by the Basel Committee for Banking Supervision as belonging to “The Risky”, and sentenced to generate much higher capital requirements for banks whenever they access bank credit, than when “The Infallible” do that.

The odious discrimination implicit in that sentence has doomed our banks to dangerous obese exposures to “The Infallible”, and to equally dangerous anorexic exposures to those who on the margin are the most important actors in the real economy.

That sentence is absurd as it completely ignores that many of those considered as utterly safe and productive today, yesterday were just some of the “Les miserable” who had the good fortune of being taken out of their precarious position by a Jean Valjean banker.

The bank inspectors have no idea of what they are doing, and in their fanaticism in pursuing “risk”, their mistake in Basel II of capital requirements based on perceived risks, is now being compounded in Basel III, with the addition of liquidity requirements also based on perceived risk.

When will the Javerts of banking supervision realize what they are doing and jump?