What contains “expected losses” can also contain the “unexpected profits” we need for increased productivity.

Sir, in “Two challenges for the global economy”, January 18, with respect to a decline in economic productivity, you mention: “The solution lies in structural reforms aimed at allowing the most innovative sectors to expand”. That is correct. What is not correct is to believe that you can so easily, so besserwisser, identify what are the most innovative sectors… and so the market needs to be free to collaborate doing that.

But regulators currently impose on banks risk-weighted capital requirements, which wrongly, and stupidly, assumes that what is perceived to risk more expected losses, also risks more unexpected losses. And that is monumentally wrong. Not only does history show us that the worst “unexpected losses” most often derive from what was considered to have the smallest expected losses… but it also implicitly assumes that what risks a lot of expected losses, cannot contain huge unexpected profits, and that more than pay for any losses incurred.

And that double consideration for perceived risk discriminates all what is perceived as risky from fair access to bank credit… and impedes the markets invisible hand to operate freely.

While that regulatory mistake stays in place, our chances to produce the unexpected profits needed to change the current gloomy productivity outlook are indeed slim.

How on earth can regulators be so daft so as to believe that our future lies in the hands of banks playing it safe?

How on earth can regulators be so daft so as to ignore that asking our banks to play it excessively safe is truly dangerous for the economy and for the banks?