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The Banking Miracle Finally Debunked

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His depressing — but very well-grounded — conclusion:
. . . because banks are in the risk business it should be no surprise that the run-up to crisis was hallmarked by imaginative ways of manufacturing this commodity, with a view to boosting returns to labour and capital. Risk illusion is no accident; it is there by design. It is in bank managers’ interest to make mirages seem like miracles. Regulatory measures are being put in place to block off last time’s risk strategies, including through re-calibrated leverage and capital ratios. But risk migrates to where regulation is weakest, so there are natural limits to what regulatory strategies can reasonably achieve. At the height of a boom, both regulators and the regulated are prone to believe in miracles. That is why the debate about potential structural reform of finance is important – to lessen the burden on regulation and reverse its descent into ever-greater intrusiveness and complexity. At the same time, regulators need also to be mindful of risk migrating outside the perimeter of regulation, where it will almost certainly not be measured.

Regulators, you have your work cut out for you.

And on a related note — and since we have no charts to go with this paper — we’re gonna throw this one in. From Bloomberg back in April — an updated version of Deutsche Bank strategist Jim Reid’s controversial “Trillion Dollar Mean Reversion” chart:


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  • 399 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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