Public letter to King Felipe VI of Spain, on his first day of work, about banking regulations that discriminate against many of his subjects.
Dear King Felipe VI of Spain.
I am not your subject, but inasmuch as for two brief years I was honored to occupy as Executive Director the chair that together with seven other countries represented Spain in the World Bank, and for many other reasons, I am concerned about the welfare of Spain.
Today, after having heard a few paragraphs of your speech yesterday and that indicates that you may be interested in the topic I will touch on, I post this letter on the web with the same hope that it will reach you that you might have of putting it in a bottle and put her to navigate the oceans ... but who knows :-)
The message I want to convey to you is that all those of your subjects who cannot obtain the best credit ratings, among others because of the cost that this process alone implies, are being hideously discriminated against in their access to bank credit, not only by bankers, which would be natural and traditional, but in this case, and without any justification, by banking regulators.
This occurs inasmuch as regulators allow banks to maintain a much lower share capital when they finance an "infallible" than when they finance a "risky" ... which means that banks obtain a much higher risk-adjusted return on their capital financing the infallible than financing the risky ones… which results in the infallible ones obtaining more credit at lower rates than normal, while the risky ones receive fewer credits and at rates comparatively higher than normal.
And such regulatory discrimination becomes especially heavy in times when banks are extremely short of social capital, especially because they have suffered large losses in activities considered non-risky and for which they were allowed to have very little capital.
And as a direct consequence of all this, a multitude of medium and small companies, as well as entrepreneurs, do not have that fair access to bank credit that would allow them to create the jobs that the youth of Spain need so much, so as not to become a lost generation.
I do not want to take more time, if you want you can find much more on the subject on this site, and of course I am at your service. However, before I say goodbye, let me explain why I previously argued that this regulatory discrimination is totally unjustified.
It just turns out that no significant banking crisis has ever been unleashed in history as a result of over-lending to what was considered risky, all such crises have resulted from over-lending to what was viewed as very safe from a point of view credit, such as the real estate sector, the AAAristocracy or, forgive me for having to remember, one or another infallible sovereign.
Your Majesty, just ask the regulators to explain to you where the heck they find causation between a lender being rated ex ante as risky, from a credit point of view, and a bank failure.
Why don't I speak directly to regulators? I have dealt with it for over a decade… hundreds of times… by all means possible… but those who think they are geniuses don't like to hear about the possibility that they are totally wrong. Perhaps you could be luckier… at least as you begin your first day on the job as King.
By the way ... Good luck!
Sincerely,
Per Kurowski
Note: While this letter travels the web, any suggestion is appreciated so that, if it reaches the hands of Felipe VI, at least it complies with the most basic formalities.
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