October 17, 2007

The regulators caused this financial Katrina

Sir, Gillian Tett in “Questions hard to answer” October 17, “A key reason why banks have sliced and diced in recent years is that these rules allow them to hold less capital against loans.” The “allow them” part does not really cut it and the phrase would be more accurate had it said “The bank regulators created regulation that provided the incentives for the banks to slice and dice.” Bank regulators made the rules and the banks acted in accordance, as they should. Can you imagine it any other way? If we are going to get out of this financial Katrina without setting us up to even worse storms we better be very clear about what caused what.