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What I as a former Executive Director, pray that any new President of the World Bank understands

Saturday, January 12, 2019 9:46

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A letter to the Financial Times

Sir, I was an ED at WB from November 2002 until October 2004. During that time Basel II was being discussed. It was approved in June 2004.

I was against the basic principles of these regulations that had begun with the Basel Accord of 1988, Basel I. That should be clear from Op-Eds I had published earlier, transcripts of my statements at the WB Board, and in the letters that I wrote and FT published during that time. Here is a brief summary of all that

Since then I haven’t changed my mind… that package of bank regulations is almost unimaginable bad.

I pray the next president of the world’s premier development bank, whoever he is, and wherever he comes from, at least, as a minimum minimorum, understands:

First, that risk-taking is the oxygen of any development, and therefore the regulators’ risk adverse risk weighted capital requirements, will distort against banks taking the risks that help to push our economies forward. “A ship in harbor is safe, but that is not what ships are for.”, John A Shedd.

Second, that what’s perceived as risky is much less dangerous to our bank systems than what’s perceived as safe, and so that these regulations doom us to especially large bank crises, because of especially large exposures to what is especially perceived (or decreed) as safe, against especially little capital.

Sir, would you not agree that mine is a quite reasonable wish?

@PerKurowski

Source: http://teawithft.blogspot.com/2019/01/what-i-as-former-executive-director.html

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