All economies need a good volume of pleasant surprises to grow. Bank regulators are now blocking these.

Sir, Olivier Blanchard writes that the reason for the surprisingly weak growth response to extraordinary stimulus, “must be found in mediocre medium term prospects”, “Slow growth is a fact of life in the post-crisis world” April 14.

If you advance bad news and do not allow risks to be taken, you cannot but guarantee mediocre term prospects”. And that is what bank regulators did.

In a very simplified way below are the four possibilities with respect to ex ante perceived credit risk and ex post outcomes.

Something perceived safe turns out safe. No surprise.

Something perceived safe turns out risky. Bad news.

Something perceived risky turns out risky. No surprise.

Something perceived risky turns out safe. Great news.

It is always what is perceived as safe but that turns out risky, which poses the greatest dangers to financial stability.

And it is always what was thought as risky but turns out safe, which most gives the economies the impetus to move forward.

But what did the regulators do with their credit risk weighted capital requirements for banks?

They guaranteed that if something safe turned out risky, banks would have very little capital to cover up with.

And they made sure banks would not risk delivering the good surprises our economies need.

No Mr. Olivier! Slow growth has not to be a fact. God make us daring!

@PerKurowski ©