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12 years since, and yet the true cause of the 2008 crisis shall seemingly not be told
Monday, November 30, 2020 12:03
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Sir, John Flint a former Before chief executive of HSBC writes: “Before 2008, regulators’ approach to conduct risk in banking was what they called “principles based” — deliberately light touch. It relied too much on banks’ abilities to govern themselves and it failed.” “Warning lights are flashing for Big Tech as they did for banks” November 30.
“principles based”? Yes, but tragically with risk weighted bank capital requirements based on a very wrong principle, namely that what’s perceived as risky is more dangerous to our bank system than what’s perceived as safe.
“It relied too much on banks’ abilities to govern themselves and it failed.”? No, it relied way too much on some very few human fallible credit rating agencies, a systemic risk.
“deliberately light touch”? If as Basel II allowed, banks could leverage a mindboggling 62.5 times their capital with assets rated AAA to AA, I would not call that a “light touch”, I would call it putting Minsky Moments on steroids.
“This time it is the technology sector rather than the financial that is leaving us all exposed.”
Sir, current bank capital requirements, 12 years since the 2008 crisis, are still mostly based on the expected credit risks banks clear for on their own; not on misperceived credit risks, 2008’ AAA rated MBS, or unexpected dangers, like COVID-19. Therefore, banks will again stand there with their pants down. A good job Sir?
