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Psychological barriers to entrepreneurship, like an overanxious nannie mentality, thrive in developed nations too.

Tuesday, September 15, 2015 14:26

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Sir, Sarah Murray writes: “the biggest barriers to entrepreneurship are psychological.”, “A variety of barriers thwart entrepreneurs in poor nations” September 15.

Indeed, so it is, and not only in poor nations.

Entrepreneurs, because they are most often ex ante perceived as poor credit risks, need to pay higher risk premiums, and have access to smaller loans; and therefore represent, ex post, quite little danger for banks.

Those ex ante perceived as very good credit risks, are required to pay much smaller risk premiums, and have access to much larger loans; and therefore, if ex post they turn out to be risky, represent much bigger dangers to banks.

Unfortunately, because of some psychological weakness, a sort of overanxious and overprotective nannie mentality, the current batch of bank regulators confuse the ex ante expected losses with the ex post unexpected losses, and so require banks to hold more capital when lending to “risky” entrepreneurs, than when lending to “safe” sovereigns and highly rated private sector borrowers.

And that allows banks to earn much higher risk adjusted returns on equity when lending to the safe than when lending to the risky… and we know what that means to the access to bank credit of the entrepreneurs.

@PerKurowski

Source: http://teawithft.blogspot.com/2015/09/psychological-barriers-to.html

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