Monday, July 23, 2012

Registering a complaint with the Financial Ombudsman Service in UK

The current capital requirements for banks are based on perceived risk, and are set considerably higher for when lending to “risky” subject than when lending to an “infallible”. 

This does not make sense, and it discriminates against those who are already discriminated against by being perceived as "risky", like small businesses and entrepreneurs, and benefits those who are already benefitted by virtue of being perceived as "infallible", like the triple-A rated and some temporarily lucky sovereigns.

That discrimination translates into that bank lending to the “infallible” can be leveraged many times more on bank equity than lending to the “risky”, and which in its turn signifies that the “risky”, on top of the higher risk margins already paid to the bank, have also to compensate the banker for this regulatory opportunity cost. That cost can often signify well over a hundred basis points… in fact it could be qualified as the mother of all interest rate manipulation schemes. 

Now if you absolutely cannot convince the regulator to stop discriminating based on perceived risks, then try at least to convince them of not using the perceived risks as such, but instead base their capital requirements on how bankers react when they see these perceive risks. 

And then, please remind them of Mark Twain’s banker, you know he who lends you an umbrella when the sun shines but wants it back the minute it looks like it could rain. Perhaps then they would be able to understand that if some bank assets should require higher capital than others, it is the assets perceived as absolutely the safest… and not the poor “risky” who have never ever caused a major bank crisis.