Wednesday, September 17, 2014

Should not at least Australia understand that "the risky" deserve a chance too?

And a speech by Wayne Byres the Chairman of the Australian Prudential Regulation Authority APRA titled “Perspectives on the global regulatory agenda” fell into my inbox.

And again, as is usual nowadays there was not a word about what I consider is the absolutely most important, namely getting rid of those distortions in the allocation of bank credit to the real economy that the risk-weighted capital requirements for banks cause.

These make banks lend too much at too low rates to those perceived as “absolutely safe” and too little and in relative terms too expensive to those perceived as “risky”.

Having just come from Toronto and seen the play “Our Country's Good” advertised with “Thieves, murderers, prostitute, actors…this is what made Australia”… it struck me that one could at least have expected Australia’s APRA not to have swallowed such regulatory nonsense. 

And in case no one has explained the implications of the risk-weighting, here is the link to more fuller real version of the terminology: