J'accuse the Basel Committee for Banking Supervision

The following are facts that should be understood by any economist.

The Basel Committee’s risk weighted bank capital/equity requirements distort the allocation of credit.

By favoring the refinancing of the safer present, it builds up dangerous large exposures to what’s perceived or decreed safe e.g., public debt, residential mortgages and AAA rated securities.

By hindering the financing of the riskier future, e.g., loans to small businesses and entrepreneurs, the economy weakens and grows less.

These are extremely procyclical. When times are good and risk perceived low, banks are allowed to hold less equity, therefore able to pay much dividends and buy back shares. When times turn bad, banks stand there naked, just when its hardest for these to raise new equity.

As valiantly confessed by Paul Volcker the risk weights are much influenced by politics. 

The Nobel Prize in Economic Sciences has not been awarded to anyone who has warned or much less criticized this risk weighted regulations. As a very active member of the Basel Committee, Sveriges Riksbank that stands behind such prize, has a serious conflict of interest it has not been able to manage.

What should the punishment be for those who risk Europe´s (and America's) unemployed youth to become a lost generation?

There are of course many who share the responsibility for risking that Europe´s (and America's) unemployed youth becomes a lost generation. But, in my opinion, the guiltiest party is regulators who came up with the absolutely lunatic criteria of making capital requirements for banks a function of the ex ante perceived risk which was already being cleared for by the banks, by means of interest rates (risk premiums), size of exposures and other contractual terms.

That distorted all common sense out of bank credit allocation in the real economy, and also caused that when something ex ante perceived “absolutely safe” turns out ex post to be “very risky”, the usual cause of all bank crises, that the banks ended up totally undercapitalized and at least temporarily unable to help out in any recovery.

These regulators have not been shamed sufficiently much less punished. In fact they were reauthorized to proceed to make a new set of regulations Basel III, conserving the same rotten apple of Basel II.

When I think about the pain and suffering these dumb regulators have and will be inflicting on millions of our young ones, then, parading them down avenues wearing dunce caps, seem to be sort of an absolute minimal social sanction.

We absolutely must hold these regulators accountable, but, until now, for around six years, they have been able to avoid taking any responsibility using a lot of distractive maneuvers. 

Many years ago, at a seminar, the facilitator asked the group to look at a video and try to keep count of how many times a group of persons passed a white ball among themselves. After one minute he asked around, getting answers like 13, 14, and 15. He then asked whether someone had noticed something strange. I, who had as it seems been distracted from looking at the ball (through luck or genes), had noticed the presence of a gorilla coming into the scene, pounding his chest and then leaving. 

So please, J'accuse...!, lookout for the Basel Committee's capital requirements for banks gorilla, who is pounding on our economies, and on the job prospects of our young