Sunday, May 19, 2013

If only Basel Committees’ bank regulations applied to the World Bank.

Then perhaps it would have been easier for the World Bank to understand how flawed these bank regulations, which are basically being imposed on the whole world, really are. 

Can you imagine the Executive Directors having to discuss that one way of reaching capital sufficiency for the bank, so as to satisfy regulators, is to lend more to those countries perceived as ‘infallible” and lend less to those countries perceived as “risky”, because the latter requires the bank to hold much more capital as a percentage… and this even though the “risky”, precisely because they are perceived as “risky”, already receive much smaller loans under much more demanding terms? 

Risk-taking is the oxygen of all development, and the “risky” are usually the actors in the real economy who, living on its margins, most need access to bank credit. In fact no country has been able to develop by means of regulations which would favor “The Infallible, those already favored by banks and markets, and thereby odiously discriminating against “The Risky” those already discriminated by banks and markets. 

And not only that, since no major bank crisis has ever resulted from excessive exposures to "The Risky" but always from excessive exposures to who were wrongly thought as being “The Infallible, the whole regulatory exercise is completely useless. 

That the world’s premier development bank, and which I as a former executive director have learned to admire in so many ways, has not been able to stand up to regulators and speak out in the name of risk-taking and in the name of “The Risky”, is a terrible disappointment to me. 

Much as a result of its silence, regulators around the world are now castrating the banks, making these completely useless in terms of performing their vital social function of allocating financial resources efficiently. 

Also much as a result of its silence, banks around the world are dangerously overpopulating whatever is perceived as a “safe-haven” 

And much as a result of its silence, youth all around the world are suffering from the lack of jobs which have resulted from banks not lending to small, mediums and large businesses and entrepreneurs who do not possess top credit ratings in equitable terms. 

Perhaps the World Bank would benefit from the recommendation Katie Couric says she once received, namely that "A boat is always safe in the harbor, but that's not what boats are built for."

PS. Some in the World Bank are perfectly aware of how much, during my two brief years as an ED, I warned about the crisis that was doomed to happen. And yet, these meek do not dare to officially invite me to the World Bank to expose to a wider audience the fundaments of my criticisms against the pillar, the pride and the joy of the Basel Committee, the risk-weighted capital requirements.