In words of two great Canadian singer songwriters, this is what has, and is happening, to Europe.

After the Basel Committee in 1988 decreed its risk adverse bank regulations, in words of Joni Mitchell’s Yellow Taxi, this is what has happened to Europe.

“Don't it always seem to go

That you don't know what you got 'til it's gone?

They paved paradise and put up a parking lot

Ooh, bop-bop-bop

Ooh, bop-bop-bop (na-na-na-na-na)

They took all the …. and put 'em in a …. museum

And they charged the people a dollar and a half to see them

No, no, no

Don't it always seem to go

That you don't know what you got 'til it's gone?

They paved paradise and put up a parking lot.”

And, if also Leonard Cohen could update his You want it darker, though surely in a more poetic way, it could go something like this:

If you’re the regulator, I'm out of the game

Deciding what banks need, kids will be broken and lame

If thine is the glory, theirs must be the shame

You want it darker

You killed the flame

It's written in regulations

It's not some nonsense claim

Basel Committee told banks

Keep refinancing our safer present

Don’t finance their riskier future

And that’s what our children got

You want it darker

They killed the flame

What has become of Europe (and of you the whole Western world)? Don’t be such a defeatist!

Please free us from imprudent risk-aversion and give us some prudent risk-taking

God make us daring!

USA and Canada beware… all this goes with you too.

 

Bank regulators, mixed and served us their Basel Accord cocktail... and since, they tell us all to sing: “Don't worry, be happy.”

The Basel I Accord (28 pages) was published in July 1988 by the Basel Committee on Banking Supervision:

Risk weighted bank capital requirements with decreed weights:

0% Sovereigns, 50% residential mortgages and 100% private sector.

The film Cocktail in July 1988, released "Don't Worry Be Happy" by Bobby McFerrin.

Here's a little song I wrote

You might want to sing it note for note

Don't worry, be happy

Basel II (239 pages) was published in June 2004.

Decreed risk weights: AAA to AA rated 20% - Below BB- rated 150%

The global financial crisis, 2008-09, caused by mortgage backed securities MBS ensued. 

The land-lord say your rent is late

He may have to litigate

Don't worry, be happy

Basel III: A global regulatory framework for more resilient banks and banking systems - revised version June 2011.

In every life we have some trouble

But when you worry, you make it double

Don't worry, be happy.

Basel III, July 2024, often retitled as an “Endgame” (for the times being only 1,910 pages), is still being worked on.

But on the margin, where it most counts when banks decide in what to invest, the risk weighted bank capital equity requirements, they still reign supreme.

And many nations and many of its citizens, having to take on new debt only to service the debt they already owe, have turned into zombies. What a hangover headache that cocktail has given us! BUT they still tell us:

Don't worry, it will soon pass

Whatever it is

Don't worry, be happy

If one were to construe a systemic risk that could bring bank systems down, this is one way

First: Make capital requirements for banks based on perceived risk. More risk more capital, less risk less capital. That would allow banks to leverage more with The Safe than with The Risky. That would allow banks to earn higher risk adjusted returns on equity lending to The Safe than when lending to The Risky.

Second: Allow banks to use their own risk models to decide what is risky and what is safe and therefore how much capital it needs. Alternatively allow some very few human fallible credit rating agencies to decide what is safe and what is risky.

Third: Sit down and wait for banks lending too much against too little capital to The Safe, like sovereigns, the AAArisktocracy and mortgages; within an economy weakened by too little lending to The Risky, like to SMEs and entrepreneurs.

But, oops, hold it there! Someone already did that! I think it was the Basel Committee for Banking Supervision.

What a sad bunch of “progressives”, and what a sad bunch of “free-market supporters”, you both groups are

Current capital requirements for banks favor the access to bank credit of “The Infallible”, like the sovereigns and the AAAristocracy, those already favored by markets, because they are perceived as “absolutely safe”; and thereby discriminate, odiously, against the access to bank credit of “The Risky”, like the small businesses and entrepreneurs, those already discriminate against by the markets, precisely because they are perceived as “risky”.

What a sad bunch of “progressives” you are, not caring about widening the gap between “The Infallible” and “The Risky”

What a sad bunch of “free-market supporters” you are, not caring about how the current bank regulations distort.

“Oh but it is all to make our banks safer” Bullshit! Our banks are never ever threatened by what is perceived as “risky”, only what is considered “absolutely safe” cause major crises.

"The ‘Mistake’ that shall not be named” Journal of Regulation and Risk - North Asia 

To download the whole Journal of Regulation and Risk - North Asia, Volume V Issue II Summer 2013: here

God make us daring!

The famous infamous progressive gap wideners.

Banks currently need to hold much more capital against exposures to “The Risky” than for exposures to “The Infallible”, and this even though “The Risky” already needs to pay higher interest rates, get smaller loans and accept harsher terms. That only hinders growth and widens the gap between the haves, the old, the history, the developed, “The Infallible” and the have-nots, the young, the future, the not developed, “The Risky”. 

Those who do not care about it, or even feel it is correct, are de-facto complicit of crimes against humanity. 

Among these we find some Nobel prize winners’ like Professors Joseph Stiglitz and Paul Krugman. 

In UK some banker's knighthoods are being recalled, perhaps some Nobel prizes should be recalled too.

You, the young, you need to denounce these stodgy aprės nous le déluge baby-boomers.