February 11, 2015

Perhaps crony-relation-weighted equity requirements for banks could be useful in Ukraine and other places?

Sir, I refer to Martin Wolf’s “Help Ukraine seize this chance” February 11.

Wolf writes: “Also important will be the reform of banking, particularly the elimination of lending by banks to the connected parts of larger business entities. This is aimed at limiting the dominance of the oligarchs, most of whom seized wealth in the early years after independence.”

That describes well a problem which affects the allocation of bank credit in many developing countries, and I would hold that has been the direct cause of most serious bank crises there.

In that respect perhaps crony-relation-weighted equity requirements for banks should substitute for those credit-risk-weighted regulations currently favored by the Basel Committee, and which so much benefits the "infallible" sovereigns and other members of the AAArisktocracy.

More-coziness-more equity… but then again there might not be someone daring o able to rate those relations objectively.