April 13, 2016

Among all that regulatory complexity, when are regulators to tell us what they think the purpose of banks is?

Sir, John Kay writes on banks: “Complexity is the enemy of stability… [it is] compounded by the regulatory complexity that follows from attempts to monitor behaviour in impossible detail… legislators cannot hope to have more than a basic knowledge of the rules they promulgate or the workings of the regulatory institutions they have created.” “Complexity, not size, is the real danger in banking” April 13.

That is a fair description of what is happening and we can only lament the incredible amount of new complications the regulators are spitting out with such gusto.

What astonishes me though is that legislators do not have the wherewithal to at least answer the question: “What do you believe is the purpose of banks?”

Sir, again, I am convinced that with their credit-risk weighted capital requirements, the regulators demostrate they do not give one iota about how credit is allocated to the real economy. And to do that well, with reasoned audacity, as I see it, is the most important function of banks.

PS. To allocate the most of bank credit has nothing to do with alocating credit in the best way. In fact often the best credit, is that not given. 

@PerKurowski ©