Here’s a thought for Basel.

Per Kurowski has been a loyal follower and supporter of this Blog and I’m indebted to him for this.  Per writes the Blog

Tea with FT (Financial Times) but his busy life seems to allow sufficient space for the odd comment on Learning from Dogs.

Here’s what Per wrote as a comment to the recent Post entitled, “Is thinking going out of fashion?“.  It seem worthy of being a guest post.

In reference to courage, here is a question on financial regulations, only for the brave.

Currently the financial regulators in the Basel Committee requires the bank to hold 8 percent when lending to unrated small businesses and entrepreneurs but only 1.6 percent when lending to triple A rated clients.

What would have happened if exactly the opposite capital requirements had been imposed? The banks having to hold instead 8 percent in capital when lending to triple-A rated clients and only 1.6 percent when lending to unrated small businesses and entrepreneurs.

It would most surely have created problems, any regulatory discrimination does, but I hold that a crisis as large as the current one would not have happened… since no gigantic financial crisis has ever resulted from excessive lending to those who are perceived as risky, they have always resulted from excessive lending to those who are perceived as not risky.

We could also have had a lot more of jobs, since almost always the next-generation of decent sustainable jobs is to be found among the current small businesses and entrepreneurs.

Our biggest financial systemic risk is without any doubt our financial regulators.

• monetary policy