BANK lobbyists have created a false debate around industry regulation, peddling fallacies to pressure the authorities into letting them off lightly, the Bank of England’s Robert Jenkins claimed in a speech published yesterday.
“The banking lobby would have us believe higher capital requirements and lower leverage will damage economic growth and retard the recovery,” the Financial Policy Committee (FPC) member told a regulatory summit.
But he argued more capital does not necessarily lead to less lending, and in fact can cut funding costs and so help lending and profitability.
Jenkins also said return on equity is a terrible measure of medium-term profitability as it fails to account for the price of risk.
But bankers continue these myths because they may not understand their own businesses, he claimed: “Have you met a single senior banker who understands his cost of capital? I have not.”