Those dastardly banks are at it again, fudging their balance sheets so they can hold less capital. Like most debates around banking, the discussion about the extent to which banks can game the system to lower their risk-weighted assets (and hence their capital requirements), would benefit from less grandstanding. The European Banking Authority, in a useful contribution on Tuesday, estimates that some banks have up to a 70 percentage point lower risk weighting across their credit books than their peers, and that only half of the difference is due to easily explainable factors.

The other half, say bank bashers, is evidence of skulduggery as most banks determine their own weights. But this ignores perfectly sensible reasons for the differences. The time at which a bank considers a loan to be in default is one example, while its enthusiasm for chasing problem debts is another. These are sound commercial trade-offs. Why shouldn’t a bank which is assiduous about chasing bad debts be rewarded with a lower risk weight for the asset?

Sure the system has its faults. Any capital adequacy system must ensure that banks have enough capital in a crisis, and give outsiders faith in that capital. Trouble is, the first cannot be proven until a crisis occurs, thus estimates of stress are as much an art as a science. Forcing banks to hold ever increasing amounts of capital, and so cutting lending capacity, is not the answer.