Saturday, November 29, 2014

Should not the taxman also create incentives to avoid stupid risk-taking like the Basel Committee does?

The Basel Committee allows banks to earn much higher risk-adjusted returns on their equity when lending to “the infallible” than when lending to “the risky”. And that is done by means of the portfolio invariant bank equity requirements based on perceived credit risk

And seemingly most of the world, if it does not ignore that, finds that regulatory risk-aversion which I find so dangerous, to be a swell idea (at least those in FT).

Now if these anti-risk supporters truly believe in the powers of these incentives, why do they not propose their taxmen to design similar policies?

For instance they should propose that dividends and capital gains from investments in absolutely safe companies should be taxed at a higher rate than those deriving from investments in risky companies. That should do it, eh?