“The raison d’être of macroprudential policy is to ensure the financial system supports the economy.” Mark Carney left out: “EFFICIENTLY”.
Mark Carney In his last speech as Governor of the Bank of England stated:
“The raison d’être of macroprudential policy is to ensure the financial system supports the economy.”
Yes, but absolutely not in the way of how a brochure at the Bank of England’s museum, explaining quantitative easing, states it, by: “Putting more money into our economy to boost spending”
Our financial system should support our economy by allocating financial resources as efficiently as possible… and that, with current risk weighted bank capital requirements is something it definitely does not achieve. For example:
Assigning a risk weight of 0% to the sovereign’s debt and one of 100% to the citizen’s debts de facto implies that a bureaucrat knows better what to do with a credit for which’s repayment he is not personally responsible for than for example and entrepreneur. And that sort of veiled communism has failed here, there and everywhere.
Assigning a risk weight of 0% to residential mortgages and one of 100% to debts of unrated entrepreneurs’, de facto implies that financing the purchase of a house is more important than financing those who could help create the jobs needed to be able to service utilities and repay mortgages… something which I hope everyone understands is not so. It caused houses to morph from being affordable homes into being risky investment assets.
Assigning a risk weight of 20% to corporate AAA rated debt and one of 150% to corporate debt rated below BB-, de facto implies that the former, besides being able to obtain much more credit and at much lower rates, also deserves even better terms… and that is plainly an immoral discrimination… and besides an utterly stupid one. Anyone who believes that the excessive bank exposures that could cause profound bank crises are built up more with assets rated below BB- than with assets rated AAA, has never ever left his desk and walked on Main-Street.
Soon the history on banking will include: Between 1988 and 202x, believe it or not, banks were regulated by experts using risk weighted bank capital requirements based on that what was perceived as risky, was more dangerous to our bank system than what was perceived as safe
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