Saturday, October 26, 2013
So sings the Basel Committee for Banking Supervision and the Financial Stability Board, while proceeding to distort all common sense out of how banks allocate credit in our real economy.
For this they concocted capital requirements based on the same ex ante perceived risks which were already being cleared for by the market.
And with this they made banks earn much much higher expected risk adjusted returns on equity on assets perceived as “absolutely safe” than on assets perceived as “risky”.
And with that they caused banks not to finance the risky future but only refinance the safer past.
And all for nothing, because that only doom banks to end up gasping for oxygen in dangerously overcrowded “absolutely safe havens”.