November 11, 2017

Perceptions change realities. In banking, what’s perceived risky is safe and what’s perceived safe is dangerous

Sir, John Authers writes: “It is not the risks we worry about that harm us. It is what Donald Rumsfeld once called the “unknown unknowns” that we were not thinking about and did not even know about. In markets, assets deemed high risk tend to be priced so that they do little harm when things go wrong”, “Crises happen when what is thought to be safe surprises us”, November 11.

Precisely. So how would now Authers explain the logic behind the risk weighted capital requirements for banks, the pillar of current bank regulations? That which in Basel II risk weighted what is AAA rated with 20% and the below BB- with 150%. That which by allowing banks different leverages for different assets senselessly distorts the allocation of bank credit. That and about which I have written more than 2.600 letters to FT and that it has decided to ignore.

Sir, when will you dare to wake up to that harrowing fact that our banks are in the hands of regulators that have no idea of what they are up to? Or do you really think that all this is a minor problem?

@PerKurowski