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.

Could/would an Inquisition Tribunal nominate as a Nobel Prize winner in Physics, someone arguing a heliocentric world?

Why do I ask?

The Nobel Memorial Prize in Economic sciences is officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. The Governor of Sveriges Riksbank since 2006, is Stefan Ingves, and who, from 2011 to 2019 served as the Chairman of the Basel Committee on Banking Supervision. 

And the Church of the Basel Committee holds, as a dogma, with their credit risk weighted capital requirements, that even though never ever have those excessive exposures that caused bank crises been built up with what’s perceived as risky, but always with what was perceived as safe, that what is really dangerous to our bank systems, is what’s perceived as risky, or what has not been decreed by them as being very safe... like loans to governments.

So, could an economist who argues that what’s perceived as safe is much more dangerous to our bank systems than what's perceived as risky be nominated to such a Nobel Memorial Prize in Economic sciences?

You tell me.

My 2019 letter to the Financial Stability Board

PS: My recent chat with ChatGPT – OpenAI on the subject of geocentric vs heliocentric bank regulations.

De riskvägda bankkapitalkraven borde åtminstone ha baserats på betingade sannolikheter. Det var de/är de inte.

Här några tweets om P (A / B)

I sannolikhetsteori är betingat sannolikhet sannolikheten för att en händelse (A) inträffar (som att banker lånar för mycket till någon säker), med tanke på att en annan händelse (B) har inträffat (att bankirerna hade uppfattat denne någon som mycket säker).

I sannolikhetsteori är betingat sannolikhet sannolikheten för att en händelse (A) inträffar (som att  banker lånar för mycket till någon riskabel), med tanke på att en annan händelse (B) har inträffat (att bankirerna hade uppfattat denne någon som mycket riskabel).

Ingen tillsynsmyndighet som vet något om betingad sannolikhet skulle aldrig ha tilldelat, med tanke på riskvägda bankkapitalkrav, en låg riskvikt på bara 20% till de bedömda som mycket säkra AAA, och en hög 150% till de bedömda som mycket riskabla lägre än BB-

PS. En fråga till Herr Stefan Yngves 2015

PS. Mitt brev till Financial Stability Board

En fråga till Herr Stefan Ingves av Sveriges Riksbank, som Ordförande i Baselkommittén

Just nu med Basel II och III, så kräver Baselkommittén att bankerna ska ha mycket mer eget kapital gentemot tillgångar som uppfattas som riskabla, än gentemot tillgångar som uppfattas som säkra. 

Detta leder naturligtvis till att bankerna kan tjäna mycket högre riskjusterade avkastningar på sitt kapital vid utlåning till "de säkra", än vid utlåning till "de riskabla". Och detta naturligtvis snedvrider utgivandet av bankkrediter till den reala ekonomin… och gör att bankerna lånar ut för mycket, på för lätta villkor, till de säkra, liksom till de ofelbara sovereigns och till AAArisktokratin; och för lite, på relativt alltför hårda villkor, till "de riskabla", som till småföretag.

Så låt oss fråga Stefan Ingves om detta. Som ordförande för Baselkommittén borde han kunna gynna oss med en förklaring.

Herr Stefan Ingves. 

Ni måste vara medveten om att även då vissa enskilda banker kan råka i bekymmer på grund av alla möjliga olika anledningar, så är banksystemet som sådant, aldrig riktigt hotat av vad som är på förhand uppfattas som riskfyllt, men bara av vad som på förhands upplevs vara helt säkert… och som senare överraskar oss alla genom att inte vara det.

I detta avseende borde ju bankregleringens första mål vara att säkerställa att bankerna har tillräckligt med kapital, framförallt visavi det som uppfattas som helt säkert. Tyvärr är detta precis motsatsen till vad som krävs nu.

Och ni Herr Ingves måste också vara medveten om att för den långsiktiga stabiliteten av bankerna, finns det inget så viktigt som en robust ekonomi; och för att en robust ekonomi ska kunna existera, är det mer än viktigt att bankkrediter sprids ut till den reala ekonomin så effektivt som möjligt.

Och så i detta avseende bör bankregleringens andra mål vara att säkerställa att man inte stör och hindrar bankerna från att fördela bankkrediter så bra som möjligt ... så att t.ex. de som mest behöver tillgång till bankkrediter, som små företag och entreprenörer, kan få det. Tyvärr är detta också precis motsatsen till vad som händer nu.

Nå Herr Ingves… förklara för oss varför de nuvarande kapitalkraven på bankerna är inte så dumma som de ser ut.

Ps. "Ett fartyg i hamn är tryggt, men det är inte vad fartyg är till för." John Augustus Shedd, 1850-1926

Gud gör oss djärva!

Per Kurowski

Ekonom, Lund 1971. fd Executive Director World Bank (2002-2004)

PS. http://subprimeregulations.blogspot.com/2019/03/my-letter-to-financial-stability-board.html

PS: Prioritera finansiering av bostadsfastigheter över finansieringen av sysselsättningen är inte det smartaste man kan göra  

Is there a point at which a Nobel Prize must be recalled so as to avoid reputational and other damages?

How much can Nobel Prize winners be allowed to ignore facts relevant to what they are discussing?

Facts: 

1. The pillar of current bank regulations is the risk-weighted capital requirements for banks. 

2. These because regulators cannot differentiate between ex ante and ex post risks, allow banks to leverage their shareholder´s capital much higher when lending to “the infallible” than when lending to “the risky”. 

3. And that results in that banks can earn much higher risk-adjusted returns on their equity when lending to “the infallible” than when lending to the risky.

4. And that distorts and makes it impossible for medium and small businesses, entrepreneurs and start-ups to have access to bank credit in fair market conditions.

5. And that makes it impossible for the liquidity or stimulus provided by quantitative easing (QEs), fiscal deficits or low interest rates, to reach what needs most to be reached.

6. And all that for no good reason at all since bank crises are never ever the result of excessive exposures to what is ex ante perceived as risky.

And so when time and time again I read that a Nobel Prize winner asks for more economic stimulus and less austerity, without the slightest reference to the need of removing that huge regulatory boulder that stands in the way of job creation and sturdy economic growth, I can´t help but to ask… is there a point at which a Nobel Prize must be recalled so as to avoid reputational damage?

Of course I do understand the difficulties for the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel. That prize was endowed by the Swedish central bank… and the current president of Sveriges Riksbank, Stefan Ingves, is also the current chairman of the Basel Committee, the committee responsible for creating the regulatory boulder that stands in our way... and that is a huge reputational risk in itself.

How dangerous it can be when reputational risks intertwine so much... in mutual admiration clubs.

  

The Western World's growing risk aversion

 The Western World was built-up with massive amounts of risk taking.

1988, the Basel Committee for Banking Supervision introduced in it massive risk aversion.

https://subprimeregulations.blogspot.com/2010/10/god-make-us-daring.html

1964: Nikita Khrushchev, First Secretary of the Communist Party of the Soviet Union; Tage Erlander, Swedish Prime Minister; (translator)

50 years later.

2014: David Cameron British Prime Minister; Angela Merkel German Chancellor; Fredrik Reinfeldt Swedish Prime Minister; Mark Rutte Dutch Prime Minister 

Young unemployed Europeans, you cannot afford having Mario Draghi, Mark Carney or Stefan Ingves hanging around.

Mario Draghi is the former chairman of the Financial Stability Board (FSB) and the current President of the European Central Bank, ECB.

Mark Carney is the current governor of the Bank of England and the current Chairman of the Financial Stability Board.

Stefan Ingves is the current Governor of Sveriges Riksbank, the Swedish Central Bank, and the Chairman of the Basel Committee for Banking Supervision.

These three gentlemen all believe that what is really risky is what is perceived ex ante as risky, which is something like believing the sun revolves around the earth... because any correct reading of financial history would make it clear that what is really risky ex post, is what is ex ante perceived as absolutely safe.

And that is why they have approved of risk weighted capital requirements for banks which allow banks to have much much less capital when lending to “The infallible”, like to sovereigns, the AAAristocracy or the housing sector, than when lending to “The Risky”, like to medium and small businesses, to entrepreneurs and start ups.

And that is why banks can earn much much higher risk adjusted returns when lending to “The Infallible” than when lending to “The Risky”.

And that is why banks cannot allocate bank credit efficiently to the real economy.

And that is why so many young Europeans are out of jobs and without real prospects of being able to land themselves some decent jobs, in their lifetime.

And that is why you must, urgently, let the Copernicus', the Galileo's, and the Kepler’s of financial regulations in.

Those who before they start avoiding risks might have asked themselves: "What risk is it that we can the least risk our banks not to take?"; and have answered that with…“the risk that banks do not lend to the risky medium and small businesses, to entrepreneurs and start ups... those who most need bank credit... those who are best positioned to find the luck we need to move forward”

Young of Europe... if you do not rock this regulatory boat you're lost!