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With bank regulations biased against risk taking, the oxygen of development, emerging has been made so much more difficult for nations

Wednesday, July 17, 2019 18:25

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Sir, I refer to Jonathan Wheatley’s report on emerging markets “Falling further behind” July 17.

Banks used to apportion their credit between those perceived as risky, and those perceived as safe, based on their own portfolio considerations and risk adjusted interest rates. But that was before the Basel Committee’s risk weighted capital requirements.

Now banks apportion credit between those perceived as risky, and those perceived as safe, based on their own portfolio considerations, the risk adjusted interest rates, and the times bank equity can be leveraged with those risk adjusted interest rates, so as to be able to earn higher risk adjusted returns on equity.

That has leveraged whatever natural discrimination in access to bank credit there is in favor of the “safer present” against that of the riskier future. Since risk taking is the oxygen of any development, what might this have done to the emerging markets?

PS. Here is the document I presented in October 2007 at the High-level Dialogue on Financing for Developing at the United Nations, New York.

@PerKurowski

Source: http://teawithft.blogspot.com/2019/07/with-bank-regulations-biased-against.html

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