America, more bank capital (equity) required for loans to “The Risky” than to “The Infallible”, is contrary to Liberty & Opportunity

Yesterday, in the good company of friends who value liberty above all, I visited the Statue of Liberty for the first time. As a son of immigrants, though not to America, looking at her my eyes went tearful, thinking about the challenges of leaving all behind, and beginning, from scratch, a new life in a new unknown foreign country.

And sitting there listening to a great audio guide I was reminded all the time of that she, Lady of Liberty, stood there greeting all, to the Land of Freedom and Opportunities.

And it all made me reflect again on the fact that current bank regulations, odiously discriminate against what is perceived as “risky”... And my eyes went tearful again. Let me explain.

Of course, a newly arrived unknown immigrant, with nothing or little to his name, would be perceived as risky by any banker, and therefore be charged higher interests, be lent lesser amounts, and have to accept stricter terms, than what applied to those residents of the Americas who already had the opportunity to made a good name and some assets for themselves.

But, those days, luckily, there was not a bank regulator in America who ordered that, on top of a bankers natural risk-adverseness, banks also needed to hold much much more capital when lending to “The Risky” than when lending to “The Infallible”.

And so those days’ bankers were free to apply their own criteria, and “The Risky” free to access opportunities, without the interference of some dumb and overly concerned nanny.

Now though, since 1988, Basel Accord, bank regulations are based on capital requirements which are much much lower when lending to “The Infallible” than when lending to “The Risky”. And that means that banks make a much much higher risk-adjusted return on assets when lending to The Infallible, than when lending to The Risky.

And that means that a current immigrant, or an American who has not yet made it to the AAAristocracy (or the AAArisktocracy) has much lesser opportunities of obtaining a bank credit to make real the kind of America’s dreams which made America what it is… because please don’t tell me that America was just built upon house ownership credit cards and consumption.

Dear Friends, "The Home of the Brave" should not accept this kind of suicidal regulatory risk-aversion, which stops banks from financing the "riskier" future and only propels these to refinance the "safer" past.

By the way I read the law, though only a layman it seems to me it is even prohibited.

God make us daring!

PS. On any Thanksgiving Day, Americans should be deeply grateful for all those who dared take the risks they all needed, and for those days bank regulators did not stand in their way. 

PS. I am not an American, but since my father was freed from a concentration camp by Americans in 1945… I confess being much biased in its favor… at least of that 1945's America.

PS. I have absolutely no objection to all the security measures taken around the Statue of Liberty but, the way some security officers voiced their authority, unfortunately, made me think of a sacrilege.

PS. Risk weights of 100% for the Sovereign and 0% for “We the People” reads like a slap in the face of USA’s Founding Fathers

PS. Here is an aide memoire on the mistakes in the risk weighted capital requirements for banks.

PS. And here are some of my early opinions on these regulations, some of them while being an Executive Director at the World Bank, 2002-04

PS. And here is a very humble home-made youtube comment on it all, from 2010