Tuesday, August 12, 2014

The Basel Committee’s and the Financial Stability Board’s Credo

We believe that banks should give larger loans, on lower interest rates and on softer terms than usual, to those who are ex ante perceived as “absolutely safe”, like the infallible sovereigns and the AAA-ristocracy; and that they should give smaller loans, at higher interest rates and on harsher terms than usual, to those who are ex ante perceived as risky, like medium and small businesses, entrepreneurs and start-ups… so that we can go home and sleep calmly.

Since that could expose us to accusations of being discriminatory, we believe that the risk-weighted capital requirements for banks, by which we allow banks to earn higher risk-adjusted returns on equity when lending to the “absolutely safe” than when lending to “the risky”, is the least transparent and therefore the most effective regulatory pillar by which we can reach our objectives.

And, to those who might criticize us we say… we believe it is not our role to guarantee an efficient allocation of bank credit so that the economy grows sturdy and stays healthy… that is definitely somebody else’s business.