Mark Twain held, so we are told, that bankers are those who lend you the umbrella when the sun is out, but want it back, immediately, when it looks like it is going to rain.
But for the Basel Committee bank regulators that was not enough, and so they told the bankers, if you lend while the sun is out, meaning to someone perceived as “absolutely infallible”, then we will reward you by allowing you to hold much less capital (equity) than if you lend to someone when it rains, meaning some perceived as risky.
And so if bankers were risk adverse before, they were now castrated… and of course they started to sing in falsetto accumulating extremely large exposures to what was officially perceive as “absolutely safe”, like AAA rated securities backed with mortgages to the subprime mortgage sector in the US, real estate in Spain and “infallible sovereigns” like Greece.
But, as if those regulations were not risk adverse enough, most commentators insisted on an excess of testosterone in the financial system, and so no corrections were made, and all those “risky” medium and small businesses, entrepreneurs and start ups who are the tough risky risk-takers we need to get going when the going gets tough, are left without having fair access to bank credit.
And so it is clear that a regulatory de-testosterone-mania has taken over the banks, at least in the western world.
Does this all mean that I would be against banks being well capitalized and therefore more risky? Of course not, requiring players to put plenty of their own skin on the line, increases the need for testosterone at the need to know how to control it simultaneously.
Let us aim for bankers capable of that reasoned audacity which can help our economies to move forward, and to avoid, like the pest, that risk aversion that only guarantees they will stall and fall.
