The Basel Committee’s capital controls, caused the capital controls in Cyprus

John Plender writes “Distortions caused by capital controls is price of stability” March 27. Absolutely, but by the same token let us remember that a dumb search for stability also caused the distortions which resulted in these capital controls.

And I refer of course to those insidious capital requirements for banks concocted by the Basel Committee, and the Financial Stability Board in order to bring more stability to the banking system, all by giving the banks extraordinary incentives to hold exposures to what was perceived as “absolutely safe” and to stay away from what was perceived as “risky”.

The Basel II regulations required for instance the Cyprus banks to hold 8 percent in capital when lending to small Cypriot businesses and entrepreneurs, a reasonable leverage of 12.5 to 1, but required holding only 1.6 percent in capital when lending to Greece, a mindboggling 62.5 to 1 authorized leverage.

We have now read reports which indicates that Bank of Cyprus' chairman Andreas Artemis handed in his resignation, along with four other directors, but the bank's board rejected the resignations. 

And this makes us ask: When are those bank regulators in the Basel Committee and the Financial Stability Board, like Mario Draghi, and who allowed banks from small Cyprus to lend to Greece as much as they did going to resign? I mean so that we too can reject their resignation and sack them.