October 20, 2010

To help trade and other worthy of help, you first need to stop giving assistance to those who should not need it.

Sir, what sets trade, projects, small businesses and entrepreneurs into a clear competitive disadvantage for gaining access to bank credits is not really that there are capital requirements for banks when lending to them, it is only natural banks should be required to have capital, it is the incredibly low capital requirements allowed the banks to have when lending to others, such as the public sector, housing, or those blessed with triple-A ratings.

In “Impact of Basel III: Trade finance may become a casualty” October 19, as reported by Brooke Masters and Patrick Jenkins we read Simon Gleeson, partner at Clifford Chance, the law firm, arguing “An enormous number of letters of credit are guaranteed by a form of government support, which should mean they carry a zero per cent risk rating”, while the real question should of course be: why the lending to triple-A rated governments have a zero percent risk rating and occurs therefore with zero marginal capital requirements for the banks?

Why should any bank lending for the purpose of buying a house have lower capital requirements than bank lending to that small business which might create a job so that someone can afford to buy a house?

If you really want to help trade, projects, small businesses and entrepreneurs to gain access to bank credit you need to level the capital requirements for all… besides why should the strong triple-A rated public and private clients needs more help than what they are already getting in the market?