July 01, 2015

My ideal adblocker, besides earning on what he blocks, should earn on the "quality" ($$$) of what he passes through to me.

Sir, Henry Mance refers to the opinion of Didier Truchot, president and co-founder of Ipsos in that “The idea that Facebook, Google and others should pay internet users for information does not stand up because the sums involved would not attract wealthy consumers”, “Plan to pay internet users for personal data would attract ‘just the poor’, warns Ipsos” July 1.

That depends, if the wealthy are an attractive consumer target, then they might be willing to pay more, not for the data on them but for their attention span.

For instance if non-wealthy little me could get a copyright on those personal preferences that data on me currently reveals, then I could make the following public offer: 

For 1US$ (revisable), for 30 seconds, with reasonable interest, I will look at any unsolicited ad directed to me while travelling the web.

I hereby declare that I am a great consumer and I have a good history of easily falling prey to offers on the web. That said, nothing here should be interpreted as a commitment to purchase anything or to otherwise follow or do what is suggested in any ad for which I have been paid a royalty.

And I would then contract an ad-blocker, not just for blocking purposes, but also to assure those advertisers sufficiently interested in me so as to be willing to pay good money, have access to me. Depending on the efficiency by which I am served, and the little I would get bothered by any unauthorized access to me, I will offer the ad-blocker up to 30% of any income derived by me in royalties on my copyright on my own preferences.

Of course, any really wealthy could charge much more for his attention span.

Sadly though, this does not seem very compatible with the fight against inequality championed by so many… but does that mean I should waste my time attention span for free? Yet, the wealthy could always donate their attention span usage income to the less well off.

@PerKurowski

Martin Wolf, what about those bank regulators who put the foolishness of Greece’s private creditors on steroids?

Sir, Martin Wolf refers to Greece’s foolish private creditors “How I would vote on Sunday if I were Greek” July 1.

Of course they were foolish but what about those bank regulators who fed so much such foolishness with their incentives?

Basel II regulations of June 2004, because of how Greece was rated between November 2004 and January 2009, A+ to A-, allowed banks to lend to Greece against only 1.6 percent in equity, which meant allowing banks to leverage their equity more than 60 to 1.

More than 60 to 1? Are they crazy? Yes they were!

And crazy they still are! Because to help Greece to recover from excessive government indebtedness while still imposing risk weighted capital requirements that hinder Greek SMEs to have fair access to bank credit is plainly insane.

The Basel Accord of 1988 introduced the notion of a zero risk-weight for sovereign (government) debt, and with that “idiotic leftism” took over the allocation of bank credit to the real economy. One of those responsible for that, as the former chairman of the Financial Stability Board, was Mario Draghi.

And so to think Draghi can now as head of the ECB help Greece to get out of the mess the regulators’ absurd view of the world and banking help to create… only evidence foolish belief in those who really have no real claim to fame, other than shamefully calling themselves experts.

Just look at what the ECB has done with QE, injecting liquidity that it knows its regulating counterparts are stopping from flowing where it can do some good.

Europe, Greece: be aware the doctors operating on you, are the same who are much responsible for your illness.


PS. If I were a Greek voter I would ask Martin Wolf, why do you not tell the whole story? Who are you covering up for?

@PerKurowski

June 30, 2015

Europe, you want the truth? It was not the euro but bank regulators who did Greece in.

Sir, Gideon Rachman writes: “the link between the EU and prosperity will have been ruptured… it is not just that the EU has failed to deliver on its promises of prosperity and unity. By locking Greece and other EU countries into a failed economic experiment — the euro — it is now actively destroying wealth, stability and European solidarity”. “Europe’s dream is dying in Greece” June 30.

With my Op-Ed of November 1998 “Burning the Bridges in Europe” I can evidence having warned as clearly and as much as anyone about the euro… and so I could be writing here “I told you so”.

But no, I assure you that the real failed economic experiment that has created the current crisis was not the euro; it is the current bank regulations.

Basel II regulations of June 2004, because of how Greece was rated A+ to A- between November 2004 and January 2009, allowed banks to lend to Greece leveraging their equity more than 60 to 1. The capital (equity) requirement was a meager 1.6 percent (the basic 8% times a 20% risk-weight).

And so of course the Greek government was doomed to take on too much public debt. What Greek politician/bureaucrat would have been able to resists the offers of loans; and what banks would resist the temptation to offer loans to Greece, in order to earn fabulous expected risk-adjusted returns on their equity?

And let us be sincere, any bank lending to a Greek government of those of lately, has de facto waived his right to be repaid… even if he was tricked into doing so by its own regulator.

What would then have happened if there had been no Euro, and Greece had borrowed Dollars, Pounds or Deutsche Marks? The ensuing haircuts would be direct, or indirect by means of Drachma devaluations. Yes the crisis resolutions could perhaps been less traumatic but the crisis would still have happened.

Get any European country to use its own currency, but keep current distortions of bank credit in place, and they are still all doomed! If somebody needs to apologize to Europe, well that is the Basel Committee for Banking Supervision.

@PerKurowski

June 28, 2015

Greece’s odious debts resulted from odious credits… those that too many want to keep flowing

Sir, I refer to Anne-Sylvaine Chassany’s FT-Lunch with Thomas Piketty, “Europe is choosing the wrong path” June 27. In it, Piketty argues for the cancellation of much Greek debt.

Anyone thinking that Greece’s debt is not already de-facto canceled, by virtue of it being impossible to serve, is either cuckoo, in desperate need of some blissful ignorance, or wants to, instead of honest haircuts, use non-transparent means like inflation to settle it. And so of course the Eurozone’ air would be much clear by biting the bullet. But two comments needs to be made:

First that that should have to go hand in hand with analyzing why Greece got into troubles, in order to avoid a repeat… and that seems to be of no concern to most, including Thomas Piketty.

The over indebtedness of Greece resulted from odious credits that would not have been extended, were it not for regulatory incentives; namely the fact that banks were allowed to leverage immensely their equity when lending to the government of Greece as compared with what they could leverage lending to for instance European SMEs.

The problem though is that, may we say naturally, because of conflicts of interest, too many in Europe, like government employees and/or statist ideologues, are too interested in keeping the flow of these easy credits going. In other words, too many have found redistribution and cleaning up debris after the storm to be a politically more rewarding activity than producing or building more storm resistant houses… and this guarantees the continuance of Europe’s “deeply flawed governance”.

Secondly, allowing banks to hold less equity against the borrowings of “the safe”, than against the borrowing of “the risky”, signifies a subsidy to those who already have more and cheaper access to credit, and a regulatory tax on those who already have less and more expensive access to bank credit. And this translates into an odious and dangerous distortion of the allocation of bank credit to real economy, and which also, by negating opportunities to those most in need of it, is an important driver of inequality. Not wanting to understand this could be explained in terms of intellectual and moral procrastination… and in Europe, I am sad to say to many seem to be engaged in that.

@PerKurowski

June 26, 2015

When the young get hold of what bank regulators are doing to their future, they will revolt… Ättestupa?

Sir, Ferdinando Giugliano writes about an “unholy alliance in support of the elderly” that expresses itself in “sparing pensioners and older workers from the cuts their governments need to make as they seek to reduce their budget deficits.” “Left and right across the bloc unite to protect pensioners” June 26.

He states: “many pension systems will pose a rising burden on government spending. But since the age of the median voter will also rise, it will become more tempting to penalise younger workers — for example by raising taxes and social security contributions — rather than cut pension benefits…reducing the incentive to work and, as a result, lowering growth. This would undermine the stability of the very pension systems they vow to protect.”

That is correct, but it is even worse than that. In essence, by means of the credit-risk weighted capital requirements for banks, regulators have imposed on banks investment/lending criteria much more appropriate for pensioners with few years life expectancies, than for the young who need much more risk-taking in order to have a chance to obtain jobs and be able to enjoy reasonably good retirements.

It is all so unsustainable. There is no way that when the young finally understand the hurt that is being done to them, that they will not revolt… and then perhaps suggest to us the reinstatement of “Ättestupa

To think credit-risk weighted capital requirements for banks are compatible with efficient flow of credit is loony.

Sir, Martin Wolf, in reference to “the financial crises that hit western economies in 2007” writes: “This is the fourth most costly fiscal event of the past 225 years… Mismanaged finance imposes fiscal costs that are not far short of world wars.” “Indispensable banks need a sturdy ringfence” June 26.

Wolf, as most other, is fixated on the “event”, on the explosion of the financial crisis. By doing so he fails to give sufficient attention to the build-up of pressures that caused the explosion, namely the misallocation of bank credit.

What set up the crisis of 2007? Regulatory distortion. Regulators allowed that which was perceived as safe to be financed against less bank equity; thereby permitting banks to obtain higher risk adjusted returns on equity on those assets; therefore causing too large exposures to what was perceived as safe.

From this perspective the “fiscal costs” Wolf refers to, could be seen as the reversal of fiscal income that should never have been earned… e.g. property taxes on properties artificially valued too high.

The number one priority for any bank regulator, long before thinking about ring-fencing and similar “safety” devices, is to make sure the allocation of bank credit to the real economy is not distorted. To look for banks to be able to survive in shining armor in the midst of the rubbles of a destroyed economy is just insane.

The Independent Commission on Banking, of which Wolf was a member, listed among its objectives in its Report (The Vickers Report) to “efficiently channelling savings to productive investments”; and yet it recommended “Ring-fenced banks with a ratio of risk-weighted assets (RWAs) to UK GDP of 3% or more should be required to have an equity-to-RWAs ratio of at least 10%. ”

The members of the ICB, and other regulators too of course, believing that credit risk-weighted capital requirements is in any way compatible with maintaining the efficient flow of credit to the economy, simply evidence they do not know what they are doing.

For the umpteenth time: Banks, primarily by means of risk premiums and size of exposures, already clear for perceived credit risks. To require banks to also adjust for perceived risk in their equity guarantees the system to malfunction. That which is perceived as “safe” will get too much credit at too low rates… that which is perceived as “risky” will get too little credit, or no credit at all, at too high relative rates.

If anything the risks to be considered is the risk of banks being able to manage the credit risks they perceive.

Bank equity requirements should foremost be a buffer against unexpected losses, and unexpected losses has nothing, zilch, zero to do with perceived risks… except perhaps that the higher the perceived risks are… the less room there is for unexpected losses.

Sir, more than anything we need to get regulators who know what they are doing, and who are much humbler about their own capacities.

@PerKurowski

June 25, 2015

Poor Greece is squeezed between a bad regulators’ rock and a leftist-ideological-blocking hard place.

Sir, Mark Mazover writes about “A last chance for Tsipras to choose country over party” June 25.

In it the Professor refers to “the country’s sky-high unemployment rates” and to “Greek banks on life support”.

That would call for two things:

First the elimination of the credit risk weighted capital requirements for banks which effectively blocks the fair access to bank credit of those perceived as “risky”, like the SMEs who could most help to generate sustainable jobs.

Second, something like Chile’s capitalization of its banks during the 1982-83 crisis, by purchasing their non-performing loans, in the understanding that these loans would be re-purchased by the banks before their dividend payments could resume.

But to get bank regulators, like the former Chair of the Financial Stability Board, Mario Draghi, to admit how wrong they have been is no easy task.

And to get Tsipras and Syriza, to back a plan executed during the Pinochet regime, that is no easy task either.

In my opinion, without doing both those things the chances of Greece recovering in a foreseeable time are nil. But, for Greece to get out of this trap between a rock and a hard place, would require some real strong leadership, from Greece and from Europe.

@PerKurowski

Inglorious regulators! Getting to know them seems more important for banks than getting to know the customer.

Sir I refer to Frances Coppola’s “The golden age of banking was not always glorious”, June 25.

Coppola writes: “The assumption is that “getting to know the customers” was the touchstone of the industry before the deregulation that followed the Big Bang in 1986. If we could only return to the way things were done in the 1950s, we would have neither the excessive lending of the mid-2000s nor the starvation diet that has stifled businesses since. Lenders would act responsibly because their staff know and care for their customers… The truth, of course, is different. Banks have always acted irresponsibly at times”.

Not really. The fact is that in the 1950s, and really not until the 1990s, were banks required to have different amounts of equity for different assets. When that was introduced, especially with Basel II in 2004, it became more important for the banks’ risk adjusted returns on equity, to minimize equity requirement, than to maximize the getting-to-know-the-customers. Then bankers who used to argue the risk of borrowers, in order to charge higher premiums, argued their safety, in order to hold less equity against these. 

“Deregulation? Hah! Those regulations, by which inglorious regulators are re-clearing for the credit-risk already cleared for, are the direct cause of “the excessive lending of the mid-2000s [and] the starvation diet that has stifled businesses since.” Just wait until the young begin to understand what these regulations did and do to their perspectives of finding jobs. 

And Coppola tries to back up his argument by asking: “remember the 60 or so small lenders bailed out by the Bank of England in 1973?”. That is not applicable. That crisis resulted from excessive lending exposure to properties, which prices fell, and had very little to do with knowing your clients. By the way, had the current capital requirements been in effect in 1973, the final invoice to BoE for the bailout would have been much much higher.

PS. "Big Bang" In 1999 in a Op-Ed in I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”

June 24, 2015

Capital requirements for banks weighted for environmental and job creation concerns, would at least serve a purpose.

Sir, Martin Wolf writes: “The best way of responding to the challenge of climate change is through changed incentives and accelerated innovation aimed at making carbon-free technologies competitive with fossil fuels. Both demand more active public policies.”, “A moonshot to save a warming planet”, June 24. He is correct but one of the active public policies that need to be reviewed is that of bank regulations.

Currently the Basel Committee’s risk weighted capital requirements for banks clears for the only risk that has been previously cleared for by banks, namely credit risk. That is as loony as can be, since it distorts the allocation of bank credit for absolutely no purpose at all. These should be based on the risk that bankers are not capable to manage perceived credit risks… which c'est pas la même chose. In fact it can be shown that it is when the perceived risks are really low, that bankers have encountered the biggest problems.

If bureaucrats absolutely must distort, because that is their modus vivendi, if their capital requirements were based on environmental and job creation concerns, then these would at least align much better with an identifiable worthy social purpose... think of earth sustainability and job creation ratings!

Of course more publicly funded research and development on renewable could help… but let us not ignore the importance of allowing banks to take more risk; to leverage their equity and the support we lend them as taxpayers more; and therefore to earn higher expected risk adjusted returns on equity, when their risk-taking makes much more sense to us.

@PerKurowski

June 22, 2015

To save Greece (and the Western World) we must call the Basel Accord a major historic mistake, and proceed accordingly.

Sir I refer to Willem Buiter’s “There is a way past the insanity over Greece” June 22.

Buiter’s proposal contains two elements that I have been arguing as essential for quite some time. First, making sure no more money is lent to the Greek government: “The ECB would bar Greek banks from making ne loans to the state”; and second, to recapitalize Greek banks so they can attend to the needs of the real Greek economy.

And that means throwing overboard all those Basel Committee’s portfolio-invariant-credit-risk-weighted capital requirements that have so distorted the allocation of bank credit. Not a second too soon for Greece… and not a second too soon for the Western World at large.

The Basel Accord principle of zero risk weight for the sovereign and 100 percent risk weight for the citizens and for instance their SMEs, pompously and odiously implied that government bureaucrats could use bank credit more efficiently than SMEs and entrepreneurs. Have you ever heard more self-serving communistic nonsense than that?

@PerKurowski

June 19, 2015

Is the Catholic Church now telling the Lutheran Church: “Thou shall not sell carbon indulgences”?

Sir I refer to James Politi’ and Giulia Segreti’s “Pope says multinationals and greed threaten environment” June 19.

Pope Francis’ encyclical Laudato Si states: “171. The strategy of buying and selling “carbon credits” can lead to a new form of speculation which would not help reduce the emission of polluting gases worldwide. This system seems to provide a quick and easy solution under the guise of a certain commitment to the environment, but in no way does it allow for the radical change which present circumstances require. Rather, it may simply become a ploy which permits maintaining the excessive consumption of some countries and sectors.”

I have for years I argued that the “carbon credits” so much promoted by Germany among others, are like the indulgences sold by the Catholic Church for the forgiveness of sins, and which Martin Luther protested. And so now, in a strange twist of history, it seems it is the Catholic Church that is telling the Lutheran Church “Thou shall not sell indulgencies”

@PerKurowski

Current regulations impose on banks investment guidelines adequate for pensioners with very short life expectancy.

Sir Gillian Tett writes “Ms Yellen stressed on Wednesday that, if you want to understand monetary policy now, you have to take a long-term view” most probably taking refuge in Keyne’s principle of that in the long run we are all dead. “A bloated Fed prepares to shape up” June 19, 2015.

But what is sure is that regulators are applying strictly the short-term view. They make banks lend almost exclusively to what is perceived as safe, and thereby rewarded with ultralow capital requirements… is about the shortest termism one can think of. Like imposing on the banks portfolio investment guidelines adequate for a pensioner with very few expected years (or months) of life left.

Tett also writes: “When future historians write the story of finance in this decade, the current feverish debate about whether rates rise in September or December may appear a mere footnote in the great battle to make the Fed more “normal” again.”

That may be but let me assure you Sir, that future historians will marvel at the stupidity of the current capital requirements for banks… and of how most of the financial world, Ms Tett and you included, decided to ignore that.

@PerKurowski

Are our brains wired so as to make us confuse ex-post real risks with ex-ante perception of risk?

Sir, James Macintosh writes: “When investors come to believe that the inherent uncertainty of markets or economies has gone away, it is usually a sign of trouble ahead, as it encourages excessive risk-taking.” Short view, June 19. And of course its opposite is the more uncertain economies seem to be, the less risk-taking will be done.

So I need to ask, once intellectually Mr Macintosh accepts that proposition, why is it so hard for him, and for others to take the leap and dare understand how utterly wrong current bank regulation is, with its more-risk-more-capital and less-risk-less-capital?

Is it something in our brains that confuses ex-post real risk with ex-ante perception of risk? Or is it something else. Like that it would require us believing experts could be 180 degrees wrong… and that is something too uncomfortable to accept?

Mr Macintosh, welcome to the real world where a Mario Draghi and many others, are just like any Chancey Gardiner figure extracted from Jerzy Kosinski’s “Being There”. 

@PerKurowski

June 18, 2015

Greece should be ashamed of presenting public sector pensions as a deal breaker, instead of youth unemployment.

Peter Spiegel and Kerin Hope report on FT’s front page that: “Mr Tsipras insisted he would continue to resist the cuts to public sector pensions demanded by creditors” June 18.

Sir, if I was a young unemployed Greek, I would go mad if I saw that the point of honor for my government, in order to negotiate or not with its creditors was the payment of the pensions of the public sector. I don’t understand how it can get away with this… or have all young Greek with any initiative already left Greece.

If I was Tsipras the following is the point I would make… or the line I would draw.

Europe, our bank regulators in the Basel Committee for Banking Supervision, all picked by you and none by Greece, decided that banks needed to hold much less capital when lending to our government, than for instance when lending to any unrated European SME.

And that meant that banks could leverage their equity and the support they got from the society much more when lending to our government than for instance when lending to any unrated European SME.

And that meant that banks could earn much higher risk adjusted returns on their equity when lending to our government than for instance when lending to any unrated European SME.

And so of course banks lent too much to our governments and too little to our SMEs.

If Greece wants to get out of its current predicament, and to be able to offer its youth good employments, these stupid risk adverse regulations must be reversed.

But that takes a lot of bank capital and we need you to helps us re-capitalize our banks. By the way you have the same problem with your banks.

@PerKurowski

June 17, 2015

All Europeans, one way or another, will pay dearly for The Greatest Pushing The Can Down the Road.

Sir, Martin Wolf writes: “the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors. Creditors, too, have a duty to take care. If they are careless, they risk big losses. If governments want to save them, their own taxpayers should be told to pay up.”, “Divorce Greece in haste, repent at leisure”, June 17.

That is partially true. The sad fact though is that if governments, with or without consultations, decide to save private investors, its taxpayers and its citizens in general, will have to “pay up”, one way or another, whether they like it or not. By the way, by not having cleared the deck of the rubbles, so as to allow for a fresh-start, they have for some years already been paying.

Once Europe (and US) gets to understand the full implications of this The Greatest Pushing The Can Down the Road carried out by feeble technocrats during the last years, many are bound to get extremely upset… especially the young.

PS. Again Martin Wolf assigns the fecklessness in this whole Greece affair only to private creditors… leaving his friends the bank regulators out of it. These regulators, by allowing banks to lend to the Greek government against much less capital than what they needed to hold when lending to for instance Greek or German SMEs, were the prime promoters of this crisis.

@PerKurowski

June 16, 2015

The hard left in Greece should shut up. Unless absolute fools, it was communist bank regulators who took Greece down.

Sir, Gideon Rachman, as one of the possible games Greeks are playing writes: “Syriza is a coalition party and the hard left of the party is likely to split off if Mr Tsipras is seen to accept austerity in return for a new agreement with Greece’s creditors”, “Four games the Greeks may be playing” June 16.

Bank regulators have decided that banks need to hold absolute minimum capital when lending to governments (or sovereigns as these like to be called) when compared to what they are required to hold when lending to for instance SMEs. With that they allow banks to earn much higher risk adjusted returns on equity when lending to governments than when lending to the other deemed risky.

And with that regulators set up the trap that guaranteed that governments would, sooner or later, become over-indebted… and one of the first one to fall hard in that trap was Greece.

Since those capital requirements also imply that regulators believe that government bureaucrats can use bank credit more efficiently than for instance the SMEs, this has to mean that the regulators are either absolutely foolish statist technocrats… or hardline communists.

And so, if I was Mr Tsipras, I would be very careful about furthering relations with the hard left… who knows what other tragedies might come out of it.

Sir, whether current bank regulators are fools or communists, Greece, and the Western World at large, need to get rid of them... urgently.

@PerKurowski

June 15, 2015

Europe must hold the Basel Committee responsible for doing Greece in, by allowing banks to lend to it against almost no capital at all.

Sir, Wolfgang Münchau favors Greece would default on all official creditors — the IMF, the ECB, the ESM and on the bilateral loans from its European creditors. But it would service all private loans with the strategic objective to regain market access a few years later” “Greece has nothing to lose by saying no to creditors” June 15.

That translates into Greece favoring some investors/speculators, while making the European and some other taxpayers take the hit. I don’t think this is a strategically correct and intelligent way for Greece to behave… and it also fosters further inequality. The sacrifices must occur, but these have to be perceived as being shared as fair as possible.

And reading the three reasons Münchau puts forward for defending the default/Grexit alternative, I must remind you that while Greece remains committed to risk adverse bank regulations, which discriminates against the fair access to bank credit of its SMEs and entrepreneurs, it will fail, no matter what it does... and Europe will be following the same route in due course.

And talking about bad regulations, it is of utmost importance for Greece an others, to make sure the responsibility for all this tragedy, is shared by those who allowed banks to lend to Greece’s government against basically no capital at all… and thereby fueled its over indebtedness. At the end of the day, in my view, it was the Basel Committee who did Greece in.

@PerKurowski

June 13, 2015

Its quite peculiar how regulators believe that banks want to pursue risky assets and shy away from the safe?

Sir, Robin Wigglesworth writes: “The very fact that the industry is fretting over illiquidity lessens the chances of any debacles, and it is already exploring various solutions to the challenge.” “The great liquidity fright and how the market will adapt”, July 13.

I agree that should be the case, but that is not how current bank regulators are seeing it.

If the risk of an asset is perceived as high, then the regulators seem to consider this presents a special attractiveness for banks, and therefore they must impose higher capital requirements for holding these assets. If on the contrary an asset is perceived as safe, then regulators believe these assets become unattractive to banks, and they therefore impose very low capital requirements for holding these assets.

Strange reasoning eh? It is like if Mark Twain had said that bankers love to lend you the umbrella when it rains and not when the sun shines.

@PerKurowski

The financial world has not even begun to extricate its banks from the rules that caused the crisis and keeps it alive

Sir, Patrick Jenkins writes: “A new era of finance feels within reach. Aided by rules that promote integrity without stifling innovation, financial institutions may finally be in a position to revive not just their own reputations but the global economy, too”, “The financial world can look beyond the crisis”, June 13.

“Aided by rules that promote integrity without stifling innovation”? Let me assure you that the pillar of current bank regulations, credit-risk-weighted capital requirements for banks do not promote integrity, and do stifle innovations.

To discriminate against the access to bank credit of those who already, by being perceived as risky, are naturally discriminated against, and favoring that of those perceived as safe, and who are already naturally favored, has nothing to do with integrity… quite the contrary.

And to thereby deny fair access to bank credit to all those perceived as risky, like SMEs and entrepreneurs, is without a doubt to stifle innovations.

This crisis is a long way from being resolved. For that the world needs to eradicate these bank regulations… those that are yet not even acknowledged.

@PerKurowski

June 11, 2015

Mr. Regulator: Do we now need political risk weighted capital requirements for banks?

Sir, John Authers writes how “The Children’s Investment Fund (TCI)… is challenging the Spanish government’s move to reduce the tariffs that the Spanish airport operator Aena can charge, [because] that will reduce Aena’s value by more than $1bn… and TCI is the second stakeholder in Aena after the Spanish government itself.” “Political risk lowers the appetite for infrastructure deals” June 11.

Holy moly! It looks like we now could need political risk weighted capital requirements for banks. I wonder how that meshes with the current zero percent risk weighing of government debt?

@PerKurowski

June 10, 2015

Mark Carney: But what are we to do with the irresponsible and unethical behavior of bank regulators?

Sir Caroline Binham and Martin Arnold reports that “Mark Carney, the BoE governor, announced an end to “the age of irresponsibility” and ethical drift, with the introduction of tougher criminal sanctions for market abuse that will be extended to parts of the financial system that have been left alone.” “UK bank governor outlines tough rules” June 11.

Great! That has been long overdue.

And it is also great that Mark Carney acknowledges “the BoE itself was to blame for some failings in markets — including both the Libor and forex scandals — [and] wants a new code of conduct to extend principles of the senior managers’ regime to his staff all the way up to the governor.

But, what are we to do with the irresponsibility and ethical drift of bank regulators? I refer to those who have abused and manipulated credit markets, by imposing and keeping in place credit-risk weighted capital requirements for banks. To thereby allow banks to earn higher risk adjusted returns on equity when lending to those perceived as safe, than when lending to those perceived as risky, is both highly irresponsible and highly unethical.

It is highly irresponsible because it completely distorts the allocation of bank credit to the real economy. That affects negatively the opportunities for our young and unborn to find decent employments.

And it is highly unethical because it favors those already favored by the banks, and discriminates additionally against the access to bank credit of those already discriminated by the banks. And that, by killing opportunities, is a first class inequality driver.

Mark Carney, you are the Chair of the Financial Stability Board, and therefore you share in the responsibility for the above, tell us, what do you suggest we do with you?

@PerKurowski

The Latin America left is just a self-serving myth… and I am not so sure of much of the rest of the left either.

Sir, John Paul Rathbone, when referring to Latin America’s “limp” response “to growing Venezuelan authoritarianism and repression, writes” “This is solidarity gone too far, especially from fellow leftist governments.” “Leaders of the left should force Caracas to face the music” June 10.

In Latin America there are no leftist governments, there are just politicians pragmatically using the leftist agendas, in order to put themselves into power for furthering their own interests. Just look at Venezuela. A country in which just gas (petrol) and cheap foreign exchange for travelling abroad giveaways represents more than what is invested in all social programs put together. What has that to do with left… or with right policies for that matter?

No, the Latin America left is just a self-serving myth, and there are indeed many making good money promoting that myth. And the number of willing buyers of that nonsense in Europe and in the US, would seem to imply that perhaps much of what is supposedly left is not really left even there.

But that said much of the right is not that right either. In fact much, perhaps most, of the current left vs. right debates, remind us of boxers spitting out at each other, looking to increase the amount of money to be split between them and the promoters for the next fights… and of the so many dumb enough to buy and love the fake shows.

@PerKurowski

How do we reduce the uncertainty on climate change risk with a higher degree of certainty? By taking risks!

Sir, Martin Wolf writes: “Framing the challenge of climate change as a problem of insurance against disaster is intellectually fruitful. It also provides the right answer to sceptics. The question is not what we know for sure. It is rather how certain we are (or can be) that nothing bad will happen. Given the science, which is well established, it is impossible to argue that we know the risks are small. This being so, taking action is logical. It is the right way to respond to the nature and scale of possible bad outcomes. “Why climate uncertainty justifies action” June 10. 

That is absolutely the right way to analyze it… though it does not necessarily make it easier, like Wolf also describes with: “It is increasingly evident that the answer has to be technological. Humanity is unwilling, possibly simply unable, to overcome the political, economic and social obstacles to collective action. The costs to current generations seem too daunting.”

And so I would retort asking: What uncertainty is riskier with a higher degree of certainty?

That we do not do anything about climate change waiting for new solutions to pop up?

That we do not do anything about climate change but also make it more difficult for new solutions to pop up?

I ask this because making it easier for new solutions to pop up requires risk-taking… and that is precisely that which our regulators have banned the world premier financiers, the banks, to take.

Right now we have purposeless and dumb bank regulations that allow banks to earn higher risk adjusted returns on equity by means of leveraging more by avoiding credit risks.

How much better would it not be to use capital requirements for banks based on weights derived from sustainability ratings (and job creation ratings), let us call these purpose weights, and allow banks to earn more when they serve a useful societal purpose… is that not why we support them so much that we even allow them to become dangerously too big too fail?

Or let me frame it all in the way that Wolf finds intellectually fruitful. Is not risk-taking, for instance by banks, the insurance premiums we must pay when we are striving for a better future for our children looking to avert stalling and falling? The current generation has not been willing to pay these... shame on it.

@PerKurowski

June 09, 2015

Europe has not yet learned the lesson that Greece, the first dead canary in the European mine offers… it must.

Sir, Francesco Giavazzi holds that Europe has spent way too much time and concerns on Greece, “Greeks chose poverty — let them have their way” June 10.

Indeed they have, but, unfortunately, they have still not learned the lesson Greece has to offer.

Greece got into trouble because even though no one really trusted its government it got too much credit. Why? Because regulators allowed banks all over to lend to Greece against minimum capital requirements, something that offered the expectations of very high risk adjusted returns on bank equity; something which therefore resulted too tempting.

And Greece has not been able to get out of there problems. Why? Because banks suffering scarcity of capital can still lend to Greece’s overinflated and over-indebted government against less capital than that what they are required to hold if lending to a Greek SME.

In 1988, the Basel Accord decided that for purpose of weighing the capital requirements for banks, the risk weight of a sovereign was zero percent while the risk weight of the private sector was 100 percent... which de facto also meant they considered that any government bureaucrat would be able to use bank credit more efficiently than a SME. At that moment a deadly venomous gas started to invade many economies… and Greece is just the first canary in Europe to drop… and, if nothing’s done to stop that gas, others will follow… until all are dead.

Europe you choose too risk-adverse regulators... wake up before its too late!

@PerKurowski

Allocation of bank credit driven excessively by credit risk, does not lead to better growth and employment.

Sir, Mohamed El-Erian writes: “Since the global financial crisis, central banks have repeatedly resorted to experimental measures to repress market volatility — not as an end in itself but, rather, to help heal balance sheets and encourage the type of economic and financial risk-taking that can lead to better growth and employment outcomes.” “Central banks opt for the tug-of-war rather than the see-saw” June 9.

Not so! Credit allocation that is driven by credit-risk-weighted capital requirements for banks cannot produce “the type of economic and financial risk-taking that can lead to better growth and employment outcomes”. And clearly central banks have unwittingly (lets pray) or knowingly turned a blind eye to that.

@PerKurowski

In Paris Conference we will hear many echoing Neville Chamberlain: There will be splendid planet earth for our time

Pilita Clark and Stefan Wagstyl report on “G7 in historic accord to phase out fossil fuel emissions this century”, June 9. Hurrah!

But when Stephen Harper, the Canadian premier, brings it down to reality mentioning that: “doing so would require “serious technological transformation…I don’t think we should fool ourselves, nobody’s going to start to shut down their industries or turn off the lights” it makes it all look much more that a historic hullaballoo… in preparation for all to come out of the Paris conference in December declaring, like any Neville Chamberlain: There will be splendid planet earth for our time.

As I have held for many years, any planet earth environmental agreement, if disconnected from the people will not work… and in that respect Governments, NGOs and Greens are not the people.

Also for me, to read about phasing out fossil fuel without phasing in nuclear power, which for the time being is the only available bridge between now and that “serious technological transformation”, shows this is not a real serious effort.

What do little me currently propose we do for our pied-a-terre?

For a starter… instead of allowing banks to earn especially high risk adjusted returns on equity on anything perceived as safe from a credit risk point of view, something which has no purpose and is dumb, we should give banks the incentives to earn those extra high returns on everything that seems to help sustainability (and job creation).

Put one and the same capital (equity) requirements for banks on all assets, for instance 8 percent, and then reduce these with up to 50 percent depending on planet earth sustainability ratings (or job creation ratings).

And please, please, please… stop talking about differences between rich and poor with respect to their responsibility to planet earth… we are all indigenous to our planet, and we all have the same human right to feel responsible for it. The “I am rich so I can take care of it better” has to stop.

PS. And forget about selling carbon emission indulgences for some fairly undefined sins in order to use the proceeds for some even less defined good deeds.

@PerKurowski

June 08, 2015

FT – IMF: Debt should be a growth hormone and not just a hallucinogen or painkiller for the après nous le deluge crowd

Sir, you refer “a financial storm [that] hit the global economy… fuelled by heedless borrowing”, “Stop worrying and learn to live with debt” June 8.

Clearly bank regulators are FT’s protégées. The heedless lending that was fueled by ultralow capital requirements for banks was what caused the financial storm’s excessive borrowings.

And now you praise a recent IMF paper that says “most countries can relax: debt ratios should be allowed to decline “organically” with growth, or through opportunistically pocketing windfalls.”, based on the argument: “Cutting debt requires higher taxes or less public investment, both at the expense of economic efficiency”

Sir, what certain link is there between public investments and economic efficiency? Sir, are there not plenty of public sector spending savings that could be done in order to increase economic efficiency?

Had baby-boomers bit the bullet in 2007-08, and accepted the losses without pushing the can down the road with Tarp, QEs and fiscal deficits, they would have suffered some quite hard times, but the deck would be cleared for the next generation to have a go.

That of course, as long as we got rid regulator’s silly aversion against banks lending to SMEs and entrepreneurs, only because these are perceived as risky, all as if bankers are blind children unable to perceive those risks.

That of course, as long as we got rid of communist or statist regulator’s who with their zero risk weight for government borrowing tell us they believe government bureaucrats can use bank credit more efficiently than a SME or an entrepreneur.

That current generations should relax about the debt, and let it “decline ‘organically’ with growth, or through opportunistically pocketing windfalls (like winning a lottery), in order to remain on easy street, expresses a shameful après nous le deluges attitude.

@PerKurowski

June 06, 2015

Nobel prizes should be recalled if wrongly exploited & tenure of most professors of finance revoked for incompetence.

Sir, I refer to Tim Harford “Down with mathiness!” June 6.

ONE: Harford writes: Paul Romer holds “I point to specific papers that deserve careful scrutiny because I think they provide objective, verifiable evidence that the authors are not committed to the norms of science.” and suggests: “that Nobel prize winners should be ejected from academic discussion because of their intellectual bad faith.”

If Romer is right about the first he is obviously right about the second. But I would like to take it even further than that. The Nobel prize is often exploited to the tilt by some of its winners to further opinions that bear no relation to the specific achievement for which they won it. That could also qualify as intellectual bad faith. They got the prize, they got the money, but they did not get the right to sell other nonsense as of Nobel prize quality to innocent bystanders. If the winners do not make clear when they simply opine like any other professional, their Nobel prize should be recalled, for the good of society.

TWO: By allowing banks to hold different percentages of capital against different assets depending on their ex ante perceived credit risk, and therefore allowing banks to be able to obtain higher risk adjusted returns on equity with some assets than with others; the regulators completely distorted the allocation of bank credit to the real economy. And that clearly is not a minor thing… that can bring down an economy and a society.

And the explanation the regulators give for what they did can be found in a mumbo-jumbo document where some monstrous mistakes can be identified, even though these hide behind what would be too much mathiness for any layman. As far as I know, tenured financial professors have not questioned it… and that alone should be reason enough to revoke their status.

Think of it this way. Suppose those who fabricate compasses did not like that ships where navigating western waters and decided to introduce some weights which tilted the directions more in favor of ships going to eastern waters. What would happen if teachers in seamanship did not even refer to this distortive compass manipulation when educating the captains to be licensed? Should those teachers not have their own license revoked?

@PerKurowski

June 03, 2015

Before managing other systemic risks, bank regulators should dare confront their own large systemic distortions.

Sir, David Oakley and Barney Jopson report that the Financial Stability Board, wants to go after big asset managers, “Asset managers’ bonds push prompts scrutiny” June 3.

Its reason is the following: “Since the financial crisis, the amount of bonds asset managers have on their books has grown dramatically, filling a void created by big dealer banks that have cut their exposure to fixed income. This shift has triggered worries among regulators about what will happen if a rise in US interest rates sparks a rush for the exit in bond markets — and that prospect has fuelled debate on tougher regulation.

Since a loss is a loss, no matter who has to bear it, huge asset managers, no matter what they say, can produce systemic economic shockwaves, and so of course everyone should be concerned with their risks.

But that said the first thing bank regulators need to do, is to understand how their own regulations have impacted the whole financial sector… in many shapes or forms.

I dare them to organize a seminar on: “What distortions do the portfolio invariant credit-risk-only-weighted capital (equity) requirements for banks cause?”

@PerKurowski

Mark Carney and Bertrand Badré, if sincere, should be concerned with the abandonment of the vulnerable “risky”

Sir, Mark Carney, chairman of the Financial Stability Board, and Bertrand Badré, the chief financial officer of the World Bank Group write: “The financial abandonment of whole groups of customers — or even countries — is not something that can be ignored by the members of the G20. The FSB and the World Bank are playing our part in co-ordinating efforts to prevent the loss of basic banking services needed to finance investment in some of the most vulnerable areas in the world… if legitimate institutions cannot channel funds between countries through a well-regulated financial system, money will instead circumvent the official channels.” "Do not shut out vulnerable from banking" June 3.

They refer mostly to anti-money-laundering regulations but the truth is that the moment regulators confused bank assets perceived as risky with banks assets being risky, and concocted credit-risk weighted capital requirements for banks, then they abandoned all vulnerable “risky” borrowers, who could then no longer count with fair access to bank credit.

The World Bank’s Global Development Report 2003 (GDR-2003), commenting on Basel II, had the following to say: “The new method of assessing the minimum- capital requirement is expected to have important implications for emerging-market economies, principally because capital charges for credit risk will be explicitly linked to indicators of credit quality, assessed either externally under the standardized approach or internally under the two ratings-based approaches. The implications include the likelihood of increased costs of capital to emerging-market borrowers, both sovereign and corporate; more limited availability of syndicated project-finance loans to borrowers in infrastructure and related industries; and an “unleveling” of the playing field for domestic banks in favor of international banks active in developing countries…A recent study by the OECD (Weder and Wedow 2002) estimates the cost in spreads for lower-rated emerging borrowers to be possibly 200 basis points.”

As an Executive Director in the World Bank (2002-04) I did what I could to fight this odious regulatory discrimination against those already being discriminated against by the banks, precisely because they are perceived as risky. I found no resonance whatsoever… and whatever little World Bank criticism was present in the GDR-2003, has seemingly been abandoned.

If Mark Carney and Bertrand Badré are really sincere, this is where they should start.

Bank nannies can worry about perceived risks and dirty fingernails. Bank regulators should mostly concern themselves with distortions and illusions of safety. Much more than safe banks we need functional banks.

PS. And, whatever you do, banks are much too important for us to allow these to be exploited as combustible material by interested politicians.

@PerKurowski

June 01, 2015

The next crisis will have the same origin as the last, too much bank exposure to what is blessed as safe by regulators.

Sir, Avinash Persaud writes: “Exotic assets, and the crippling losses that big and indispensable financial institutions suffered after buying too many of them, bore much of the blame for the last financial crisis. The next one might have a more paradoxical cause. Instead of being overexposed to assets of dubious provenance, many of the same institutions may be buying too many of the assets that the authorities deem safe.”, “The assets made combustible when regulators call them ‘safe’” June 2.

What “Exotic assets that bore much of the blame for the last financial crisis” is Persaud talking about? Where has he been? Was it not AAA rated securities, loans to Greece, any assets backed by default guarantees issued by an AAA rated like AIG, loans to the real estate sector in Spain, and similar “safe assets” that caused the crisis? Every single one of these problematic assets had one thing in common, namely that bank were allowed to hold very little equity against these because these were perceived as safe.

But Avinash Persaud is absolutely correct when he ends stating: “In the popular narrative, the financial crisis was caused by the willful wrongdoing of the banks. Regulators should know better. In financial markets, risky behavior is less often born of recklessness than of a false sense of safety.”

I wonder though if he will dare to honestly extrapolate from what he is saying… and understand that current capital requirements for banks should perhaps be higher for what is perceived as safe than for what is perceived as risky? And then dare to state that current bank regulators have been 180 degrees wrong?

EDTF beware; disclosure requirements for banks can also be used as camouflaging material.

Sir, Oliver Ralph writes: “Maybe one day banks may be trustworthy enough not to have publish annual reports that are hundreds of pages long”, “Excessive disclosure by banks eludes comprehension” June 1.

Indeed but it is clear that publishing annual reports that are hundreds of pages long does not make banks more trustworthy either. One-way to concealed bad behavior, is to bury it under hundreds of pages of mumbo jumbo.

Ralph refers also to the Enhanced Disclosure Task Force’s (EDTF) “recommendation 7, which asks the banks to describe risks in their business models.” Would that cause banks to prepare their own homemade list of weights they assign to the risks in their business? That could shed some light on what risks the banks are not considering in their business model… but frankly, mostly it seems like generating profitable employment opportunities for bad and good fiction authors.

And I set all these efforts against the background of the regulators and the banks having colluded in producing that masterpiece of financial disinformation, which is the leverage that in the numerator does not use assets but risk-weighted assets instead.

Few days ago, a leading American newspaper, citing another leading American newspaper in its editorial expressed “banks are significant safer than they were prior to the 2008 financial panic, with an average of $13 in capital for every $100 in assets for member banks of the Federal Deposit Insurance Corp”. That is false! It should have stated for every $100 in risk-weighted assets; and it should have reported the real undistorted leverage too.

Since the risk weighing not only distorts information but also the allocation of bank credit to the real economy, something that is even more dangerous, the EDTF should start by clearing this out with the Basel Committee, before allowing banks more mumbo-jumbo material under which to hide.

May 29, 2015

Sir FT, are you now preparing Mario Draghi’s future defense?

Sir, I refer to your “Draghi’s impatience at the slow pace of reform” May 29. In it you write: “Mr. Draghi’s latest intervention betrays impatience [with the lack of structural reform] that he risks stepping across the border that separates his sphere from that occupied by the democratically elected… Institutions such as the ECB play a valuable role when providing advice and gentle advocacy. But any reforms that appear to arise at the bequest of an unelected official, particularly one with such power as Mr Draghi, may struggle to take root”.

I hope you are not trying to imply that the former chair of the Financial Stability Board is not speaking out against the stupidity of the bank regulations he was partly responsible for, only out of respect to local politicians. That defense strategy of Mr. Draghi is not acceptable.

Really, unless blessed with eternal ignorance, how can bank regulators live with themselves knowing what they are doing?

Really how can journalists live with themselves knowing how they silence truths?

PS. Is there anything as stupid and paternalistic as regulators forcing bankers to consider risks they already perceive?



Thanks "Learning from dogs" for the heads up for this photo

@PerKurowski

Stop blaming low productivity on the “bonus culture” there are even worse cultures, like the Basel Committee’s

Sir, I refer to Andrew Smithers’ “Executive pay holds the key to the productivity puzzle”. May 29.

Smithers writes: “Productivity improves with the amount of capital per employee, and the efficiency with which it is used…. We do not know how to improve the efficiency with which capital is used”.

Yes we do! And the first thing to do is to eliminate those odiously manipulating credit-risk-weighted capital requirements for banks, which distorts all the allocation of bank credit to the real economy.

Of course bonuses distorts but, in the great scheme of things, there is little to be achieved correcting for that, in the bigger companies where the problem is present, if we do not allow all “the risky” SMEs and entrepreneurs to have fair access to bank credit, because of outrageously dumb regulations.

Really, unless blessed with eternal ignorance, how can bank regulators live with themselves knowing what they are doing?

@PerKurowski

FT, I’ve blown the whistle on bank regulator’s foul play many times. But Gillian Tett does not want to hear it. Why?

Sir, I refer to Gillian Tett’s “Finance needs to blow the whistle on foul play” May 28.

I have sure blown my whistle. On my TeaWithFT blog I have, with this, 141 comments directed to Gillian Tett over the years. Surely more than half of these have to do with the lunacy of bank regulators.

With their credit-risk-weighted capital (equity) requirements for banks, that favors lending to what is perceived as safe over what is perceived as risky (as if that would be needed) they manipulate and distort the bank credit markets… clearly foul play. And all that for absolutely no good reason, since all major bank crisis have only resulted from excessive exposures to what was ex ante perceive as risky but that ex post turned out to be risky.

Sir, could you please ask Ms. Tett, as an anthropologist, to explain why journalists like her give so much more credence to those who for unexplained reasons have been named bank regulators, than to ordinary bankers who at least have to compete with other bankers… or citizens like me?

For instance from where can a professional like Ms. Tett derive the notion that a Mario Draghi, just because he was named chair of the Financial Stability Board by some unknown bureaucrats, knows more about risk managements and how banks should behave than any ordinary banker or finance professional?

If simply stating: “I am the regulator” makes someone less prone to make mistakes or to behave badly than the one being regulated, and to have that nonsense believed by journalists, then we are definitively screwed.

PS. For instance, before the approval of Basel II, I loudly blew the whistle on the dangerous systemic risks of using credit rating agencies too much in bank regulations… both as an Executive Director at the World Bank and in FT. Nobody wanted to hear it  L

May 27, 2015

I refuse to believe in the Basel Committee’s nonsense of government bureaucrats using bank credit better than SMEs

Sir, you hold that “Bankers need to demonstrate that they know right from wrong”, “Regulation alone will not restore faith in markets”, May 27.

If you set the weight for the capital (equity) requirements for banks when lending to government at 0%, and at 100% when lending to SMEs, that means that banks will lend more and at lower relative rates to the government than to the SMEs. And that means de facto you believe that government bureaucrats are more productive using bank credit than SMEs.

Well, I refuse to believe that. I believe that if you believe something like that, you are either extremely dumb or a communist.

And I do believe that good non-distortive regulation alone will go a long way to restoring faith in markets.

But if you in FT insist on keeping mum on the fact that regulators are distorting and are manipulating the bank credit markets… I must ask: Sir Financial Times, do you know right from wrong?

@PerKurowski

All finance is great when debtors have a good plan… Force-feeding debtors is worse than feeding geese for foie gras

Sir, Martin Wolf writes: “Houston, we have a problem. We have a great deal of evidence that too much finance damages economic stability and growth, distorts the distribution of income, undermines confidence in the market economy, corrupts politics and leads to an explosive and, in all probability, ineffective rise in regulation. This ought to worry everybody.” “Why finance is too much of a good thing” May 27.

When I was an Executive Director in the World Bank 2002-2004 there were a lot of discussions about “debt sustainability”. I hated it… because it all sounded like a torturer calculating how much pain you could inflict before your tortured fainted.

I even left a blog titled http://unsustainabledebtsustainability.blogspot.com hanging around there out on the web.

Debt is great; there never is enough of it, as longs as you know what to do with it, and you truly believe you can repay it.

All other financing, forced down the throat of debtors…odious credit, is much worse than feeding geese to produce foie gras... something that at least has a purpose.    

It all comes down to the same problem, we are in hands of regulators who want to regulate more than what they want to know what they are regulating for. And it’s our own fault, more Martin Wolf’s than mine, for not calling their bluff.

PS. I have also alerted Houston:



@PerKurowski

Martin Wolf, absent conflicts of interest, and with perfect information, would there even be financial markets?

Sir, Martin Wolf writes: “It is very costly to police markets riddled with conflicts of interest and asymmetric information. We do not, by and large, police doctors in this way because we trust them. We need to be able to trust financiers in much the same way.” “Why finance is too much of a good thing” May 27.

And of course it is hard, and absolutely politically incorrect to disagree with that… but still there is a question that should nag us:

Would there be financial markets in the absence of conflicts of interest and presence of perfect information? Is it not precisely conflicts of interest and asymmetric information, all dosed with a hefty amount of blissful ignorance, which gets markets out of their bed every morning?

Martin Wolf, the purpose of doctors is very clear and it would be foolhardy for doctor regulators to stand over their shoulders and intervene. But let me ask you, what for you is the real purpose of financial markets, and banks. I ask that because if you just want to go ahead and control for control’s sake, then you are a just a freaking dangerous vigilante.

Here we are, in May 2015… with our banks still being regulated by some nuts, who have not yet clearly told us what they think the purpose of banks is; and then made sure we the society agree… freaking dangerous vigilantes they are!

PS. Now the Basel Committee regulators imposes purposeless credit-risk weights for determining the capital (equity) banks need to have against assets. Why do we not ask them for some purpose weights... to see what they can come up with?



@PerKurowski

Martin Wolf, besides our bankers, do we not have to trust our bank regulators too? I sure don’t.

Sir, Martin Wolf writes: “morality matters. As Prof Luigi Zingales argues, if those who go into finance are encouraged to believe they are entitled to do whatever they can get away with, trust will break down. It is very costly to police markets riddled with conflicts of interest and asymmetric information. We do not, by and large, police doctors in this way because we trust them. We need to be able to trust financiers in much the same way.” “Why finance is too much of a good thing” May 27.

But, do we not need to be able to trust our bank regulators too? I certainly don’t!

Anyone setting the weight for the capital (equity) requirements for banks when lending to government at 0%, and at 100% when lending to SMEs, must know that means that banks will lend more and at lower relative rates to the government than to SMEs. And that de facto means they believe that government bureaucrats are more productive using bank credit than SMEs.

Well, I refuse to believe that. I believe that if you believe something like that, you are either extremely dumb or a communist… in either case you’re not trustworthy. 



@PerKurowski

May 26, 2015

Here are two heartfelt recommendations to India.

Sir, I refer to Henny Sender’s very comprehensive “India’s shadow banks step in to lend where others fear to tread” May 26.

I just want to add the following:

First, India, as a developing country, can certainly not afford bank regulations that favors the allocation of bank credit to the safer past than to the riskier future… and so it urgently needs to get rid of the distortions that the Basel Committee’s credit risk weighted capital (equity) requirements for banks produce.

And second, with respect to its private sector banks, these could also benefit from a major re-capitalization plan, like the one Chile did in the early 80s. The central bank should issue bonds using the proceeds to acquire the banks’ non-performing loans (which will permit the reversal of all provisions) and the banks would commit to repurchase those loans from the Central bank, plus interests, before they can proceed with any dividend payments.

That could turn it around much faster for India.


@PerKurowski

FT, do you really think credit-risk-weighted capital requirements for banks do not cause lower productivity?

Sir, Sam Fleming and Chris Giles ask: “what can be done to restore the productivity levels needed to boost living standards…?” “The waiting game”, May 26.

But even though they point out “Investment is too low”, they do not even mention the effect that credit-risk-weighted capital (equity) requirements can have on that and on productivity.

The Basel Committee’ credit-risk-weight of governments is 0% while the weight of SMEs and entrepreneurs is 100%.


And that is something quite discussable, especially in these days when governments announce they need to use financial repression in order to impose informal haircuts on their obligations.

But that also translates de facto into the Basel Committee stating that the risk weight for bank credit not being used productively is 0% for government bureaucrats, and 100% for SMEs and entrepreneurs.

And only communists could think that has no negative effect on productivity.

Are you communists FT? If you’re not then it is high time you help me to ask regulators about the concept of productivity weighted capital requirements for banks? I mean something that gives our banks a more elevated societal purpose, than just being safe-mattresses, and housing or government financiers.

Have not our children and grandchildren waited enough for that?

@PerKurowski