Sir, David Crow and Rachel Sanderson write: “Filippo Alloatti, senior credit analyst at Hermes, said that [Italian] banks were “super long” on Italian government debt, which accounts for between 13 and 15 per cent of their total assets… Such heavy exposure has revived the spectre of the doom loop, which describes the inextricable link between Italy’s heavily indebted public finances and its banks”, “
Italy’s lenders feel heat as doom loop fears return” October 12.
And one of the most surprising things for someone like me who plays no formal role in the regulation of banks is why the world did not object to the horrors of banks regulators that, with Basel I in 1988, for the purpose of risk weighted capital requirements, assigned a risk weight of 0% to the [friendly] sovereign and one of 100% to the citizens.
That this regulation that so clearly favors crony statism was introduced
a year before the Berlin Wall fell is evidence of how much can go wrong, if we allow unelected officials to engage in groupthink within a mutual admiration club.
Central bankers and regulators around the world have, with their especially low capital requirements against sovereigns, been setting our bank systems up to an especially monstrous crisis, and still they congratulate themselves for more resilient banks.
Just like they have set us up, to an equally especially monstrous disaster in waiting, with their especially low capital requirements for banks financing the purchase of houses; which has transformed houses from being safe homes into risky investment assets.
Central banks have of course made it all so much worse by keeping ultra low interest rates, and pouring huge amounts of QE liquidity on this structurally faulty regulatory fabric.
If Italy goes down the tube will financial authorities lay the full blame on Italy,
just as they did with Greece after they doomed it with that odious 0% risk weight?
Sir, you know I feel the Financial Times has kept complicit silence on all this.
@PerKurowski
Source:
http://teawithft.blogspot.com/2018/10/the-regulators-are-responsible-for-doom.html
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