Visitors Now:
Total Visits:
Total Stories:
Profile image
By Tea with FT (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Because of risk-weighted capital requirements, banks can turn out riskier when engaging in regulatory “risk-shedding”

Thursday, December 1, 2016 19:31
% of readers think this story is Fact. Add your two cents.

(Before It's News)

Sir, with respect to British banks you write: “risk-shedding would decrease the cost of capital, if the markets could be made to believe in it” “British banks’ capital is only half of the problem” December 1.
Why is it so hard for you to understand the differences between ex ante perceived risks and ex post real risks?
Currently, the lower the ex-ante perceived risk is, the lower capital banks are required to hold, so the more they can leverage their equity, so in reality the higher can the ex post real risk be.
When banks got rid of loans to SMEs and acquired AAA rated securities, they were just shedding risks following their regulators instructions.
So why on earth should markets believe that risk shedding for regulatory purposes would make banks safer? Have markets not been recently very much deceived by the regulators? One of these days a small shareholder might sue the regulators for having willfully deceived him, by promoting the use of capital to risk weighted asset ratios instead of the usual capital to asset ratios.
PS. And of course British banks’ capital is even less than half of the problem. The real problem is that bank credit, because of the risk weighting, is not allocated efficiently to the real economy.
@PerKurowski

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.