When regulators, to bankers’ lack of testosterone added their own lack of it, the Western civilization started its descent

Fact: Major bank crises result from unexpected events, criminal behavior, or excessive exposures to something ex ante perceived as safe, but that ex post turned out to be risky.

Fact: No major bank crisis ever has resulted from excessive exposures to something that was perceived as risky when placed on banks’ balance sheets.

Mark Twain with his supposedly: “A banker is one who lends you the umbrella when the sun is out and wants it back as soon as it looks it could rain” would attest to that.

Fact: Nonetheless bank regulators scared witless by the same perceived risks, imposed larger capital requirements for what is ex ante perceived as risky, than for what is ex ante perceived as safe.

That means bank can now leverage more their equity with “the safe” than with “the risky” 

That means bank can now earn higher expected risk adjusted returns on equity on “the safe than on the risky.”

Consequence 1: That day banks finds that excessive exposures to what was perceived, decreed or concocted as safe turns out risky, something that happens sooner or later, like with the AAA rated securities or sovereigns like Greece, the banks will stand their more naked than usual.

As Voltaire said: “May God defend me from my friends, I can defend myself from my enemies”

Consequence 2: Bank stop financing the "riskier" future the next generations need to be financed, like SMEs and entrepreneurs; in favor of refinancing the "safer" present.

As John A Shedd said: “A ship in harbor is safe, but that is not what ships are for”.

Our current regulators had no clue of what they were doing. In order to hang on to their jobs and hide their mistake, they are clouding the whole issue with more and more complexity.

They must be stopped, remembering of course Einstein’s: “No problem can be solved from the same level of consciousness that created it”.

God make us daring!

Here a more detailed analysis of this awful regulatory mistake

The Basel Committee’s risk weighted capital requirements for banks, is one cultural genocide of the western world

Frequently we read about how the destruction of monuments amounts to cultural genocides. But are monuments all there is about cultural heritages? No! Also such heritages as a cultural willingness to take risks.

In 1988, with the Basel Accord, Basel I, regulators introduced risk based capital requirements for banks; which were further amplified in 2004 with Basel II.

That regulation allows banks to earn higher risk adjusted returns on equity when holding “safe” assets, than when holding “risky” assets.

The layer of regulatory risk aversion it introduced, made banks abandon financing the riskier future, in order to just refinance the safer past and present.

The willingness to take risks is part of the cultural heritage of my western world, in churches we sang a psalm that prayed for “God make us daring”.

The willingness to risk making mistakes, has provided the western economies with the raw material necessary for the successes that helped to buildup its economy.

“A ship in harbor is safe, but that is not what ships are for.” John A Shedd

But now: “If God can’t make our bankers sufficiently coward, then we have to!” Bank regulators

In short, the Basel Committee for Banking Supervision’s regulatory imposed risk aversion, constitutes a destruction of a cultural heritage of our western world.

And all for nothing! The regulators justified it with that it would make our banks safer. What nonsense! Major bank crises never ever result from excessive exposures to something ex ante perceived as risky; these always result from either unexpected events, or excessive exposures to what was ex ante perceived as very safe, but that ex post turned out to be very risky.

“May God defend me from my friends, I can defend myself from my enemies” Voltaire

PS. Actual risk weights: AAA to AA rated 20%, Below BB- 150%. Can it be more loony than that?