Per Kurowski has been a loyal follower and supporter of this Blog and I’m indebted to him for this. Per writes the Blog
Per Kurowski
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.
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on cross-border banking supervision.
The Committee’s members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The present Chairman of the Committee is Mr Nout Wellink, President of the Netherlands Bank.
OK, that’s clear then!
Pers Kurowski
Well, according to a good supporter of and Guest contributor to Learning from Dogs, Pers Kurowski, we really ought to know much, much more about this ‘committee’.
Pers has a Blog called Tea with FT (as in the Financial Times) and there is much to read there that helps us understand why we are in so big a mess with the banks. Here’s his piece from the 4th May.
Basel Committee, why don´t you just shut up!
Sir who do these Basel Committee regulators really think they are bullying us around with an arrogant “the banks should be sensible and realise that it might backfire if they protest too much”? as reported by Brooke Masters, May 4.
They themselves are the ones who thought everything would be fine and dandy if they just had some few credit rating agencies determine default risks and then gave the banks great incentives, by means of different capital requirements, to follow those credit risk opinions. They themselves are the ones who believing in the abundance of safe triple-A rated lending and investments, caused the world to stampede and fall over the subprime mortgages. They themselves should shut up, because rarely has the world seen such a gullible naive and outright stupid bunch of regulators.
Now the banks, in the midst of a crisis, need to build up the equity they do not have precisely because the Basel Committee did not require them to have; precisely when we need the most the banks to lend. The regulators, instead of bullying banks, should busy themselves day and night finding ways for severely capital stretched banks to be able to lend to those small businesses and entrepreneurs who have had to pay the cost of higher capital requirements but who had absolutely nothing to do in generating this crisis.
And just in case, for the record, I am no banker, only a citizen, very upset with the fact that in the 347 pages of the regulations known as Basel II, there is not one single word that describes the purpose of those regulations. Basel Committee why do you not start defining a purpose for what you are doing? Is that too much to ask?
Learning from Dogs 