December 13, 2010

More than the destination it is the road travelled that counts

Sir, Prof Eric De Keuleneer suggests that “Bank just might have too much equity” December 13. That is oversimplifying it. Banks are required absolutely too little capital, zero to 1.6 percent, when lending to what is perceived as having a low risk of default, and therefore, strictly in relative terms, much too much capital, 8 percent, when lending to what being perceived as riskier, like the small businesses or entrepreneurs who are indispensable to the economy as a whole.

In that respect what should be done is to temporarily reduce the capital requirements for what is perceived as risky, to whom bankers will presumably still not lend excessively to, much less without more careful studies, so as to make the journey to “sufficient bank capital” a less discriminatory venture.

I support of course to De Keuleneer´s recommendation that “the credit rating agencies should be used less and with less authority”; that is an absolute must if we want to return our bankers from that world where they do not need to have an opinion of their own but are satisfied with monitoring the opinions of others.