Monday, October 18, 2010

The world needs risk-taking in order to move forward

The willingness to take risks is one of the most powerful sources of energy. If we do not channel risk-taking into the construction of society, it will inevitably flow into the destruction of society.

The current regulatory paradigm imposed by the Basel Committee on Banking Supervision on the banks, and to which most of the world has agreed to, does not promote our bankers to be intelligent risk-takers in their fundamental role of satisfying the financial needs of all those other risk-takers like small businesses and entrepreneurs.

On the contrary, what these regulations do is to stimulate plain dumb risk-adverseness among the bankers by increasing the returns to banks on what is perceived by some credit rating agencies as being, ex-ante, of very low risk… and which is also precisely the terrain where excessive lending or investments that lead to a systemic crisis always bloom.

Unless the bank regulators are determined to regulate for submerging countries they must come to understand much better the whole concept of risk.