Showing posts with label letter. Show all posts
Showing posts with label letter. Show all posts

Saturday, April 15, 2017

When banks play it too safe - putting inequality on steroids - the McKinsey silence

In his April 9 Outlook essay, “Public Policy, Inc.,” Daniel W. Drezner, writing about how consultancies such as McKinsey have started to act like policy knowledge brokers, mentioned that these “have their own biases.” Indeed.

Bankers love to hold assets perceived as safe against very little capital. It helps them earn great risk-adjusted returns on equity.

But we citizens have no reason for loving that:

By going too much for the safe, banks will not lend sufficiently to the riskier entrepreneurs who are the prime builders of our grandchildren’s future. Sooner or later, banks will get caught with little capital holding dangerously large exposures to something that was perceived safe but that turned out risky. Depositors and taxpayers will suffer.

There is no question that banks are more important clients for consultant companies such as McKinsey than citizens are. That must be why financial consultants have not denounced how the Basel Committee on Banking Supervision’s risk-weighted capital requirements for banks dangerously distort the allocation of bank credit to the real economy.

Millions of entrepreneurs around the world have, as a direct consequence of these capital requirements, been denied the opportunity of bank credit. Talk about putting inequality on steroids. 

Per Kurowski, Rockville
The writer was an executive director at the World Bank from 2002 to 2004.

Tuesday, April 30, 2013

Another letter in Washington Post: An American approach to banking

An American approach to banking

Regarding the April 29 editorial “A diet for the big banks”: 

It suffices to remember the saying about “a banker being that chap who lends you the umbrella when the sun shines but wants it back as soon as it looks like it is going to rain” to know that those assets perceived as safe are already much favored over those perceived as risky. The risk weights applied by the Basel III regulations and based on exactly those same perceived risks only increase the gap between “The Infallible” and “The Risky.” 

And that is why I very much salute the bill by Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La.) that looks to “require more capital and better capital but also limit the ‘risk-weighting’ of assets.” More capital is a perfectly legitimate requirement, but the imposition of risk weights is fundamentally incompatible with “a land of the brave.” The United States did not become what it is by avoiding risks. 

That the bill puts the United States at odds with Basel III regulations does not matter, as those regulations have been proven harmful enough. On the contrary, Europe would also do better with a Brown-Vitter proposal. 

Per Kurowski, Rockville 
The writer was an executive director of the World Bank from 2002 to 2004.


Sunday, December 27, 2009

A letter in the Washington Post

Another 'worst': Faulty bank regulation

The Dec. 20 Outlook compilation of the decade’s worst ideas did not 
include the one most to blame for the loss of most of the past decade’s 
growth: regulations that allowed banks to hold absolute minimums of 
capital as long as they lent to clients or invested in instruments rated 
AAA, for having no risk. This launched a frantic race to find AAA-rated 
investments wherever and finally took the markets over the cliff of the 
subprime mortgages.

The most horrific part is that it seems likely to endure because 
regulators can’t seem to let go of this utterly faulty regulatory 
paradigm. Let me remind you that banks are allowed to hold zero capital 
when lending to sovereign countries rated AAA and that there are already 
many reasons to think that the credit quality of many sovereign states has 

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