Some unasked questions that all nominees to the Federal Reserve Board, and of course its current members, should be dared to answer

Intro: The Federal Reserve’s risk weighted bank capital requirements allow banks to hold much less capital, translating into being able to leverage much more with assets perceived (or decreed) as safe e.g., Treasuries, residential mortgages and those with an AAA rating, than with e.g., small businesses, entrepreneurs and assets rated below BB-.

Q. With what assets do you think all those excessive bank exposures that have and could cause really serious bank crisis are built up with: with those perceived as safe or with those perceived as risky?

Intro: When times are rosy, these risk weighted bank capital requirements, allow banks: to lend dangerously much to what’s perceived as very safe; to hold much less capital; to do more stock buybacks and to pay more dividends & bonuses.

Q. Does this not sound like that when times turn bad, banks will stand naked when they are most needed? 

Intro: It is much easier for banks to obtain the risk adjusted returns on equity they look for with assets they can leverage more, and so therefore banks will naturally prefer these, that is unless assets which could be leveraged less, provide additional risk adjusted margins.

Q. Do you think it is more important for banks to finance residential mortgages than to finance those loans to small businesses that could help people get the jobs with which service mortgages and pay utilities?

Intro: The Fed when in 1988 it accepted the Basel Committee’s risk adverse bank capital requirements, it decreed weights of 0% the federal government and 100% “We the people”. 

Q. Do you think the Founding Fathers of The Home of the Brave would agree with regulators imposing risk aversion on its banks; and with bureaucrats knowing better what to do with credit for which repayment they’re not personally responsible for than American small businesses?

Q. Do you have an opinion on how much the strength of the US dollar depends on the United States remaining being perceived as the foremost military power in the world, and of course on its willingness and capacity of exercising such power?

Please, if I may, one last question:

Q. Where do you think America would be, if these bank regulations had been in place the last couple of centuries?

@PerKurowski