Sunday, April 26, 2015

The Basel Committee for Banking Supervision’s tragic mistake of doubling down on perceived credit risks

Bankers manage the expected losses by means of perceiving credit risks. And if they are not good at it, they should fail.

Bank regulators on the other hand, need to impose equity requirements on banks to cover for unexpected losses. That is in order to create a buffer between a bank’s operations and the needs for taxpayers’ assistance.

Unfortunately, don’t ask me why, the Basel Committee for Banking Supervision imposed equity requirements on banks that are also based on perceived credit risks, more-risk-more-equity and less-risk-less equity.

That signified a doubling down on credit risk perceptions. And any risk, even when correctly perceived, can create much havoc, if it is given too little or too much importance.

As a consequence current allocations of bank credit to the real economy are utterly distorted, by favoring those perceived as “safe” and punishing those perceived as “risky”.

And also banks will most certainly have insufficient equity to cover for unexpected losses, simply because, the “safer” a borrower seems ex ante, the greater the possibility for the unexpected to cause truly huge disasters, ex post.

And this mistake that has been around for about 25 years, even after disaster struck, is still as of today, not yet even acknowledged by those responsible for it.

Wednesday, April 22, 2015

The amazing Achilles heels of the Basel Committee’s bank regulations

1. The unexpected losses (UL) are derived from the expected Probabilities of default (PD)

“It was decided… to require banks to hold capital against Unexpected Losses (UL) only. However, in order to preserve a prudent level of overall funds, banks have to demonstrate that they build adequate provisions against Expected Losses” (Page 7)

Under the implementation of the Asymptotic Single Risk Factor (ASRF) model used for Basel II, the sum of UL and EL for an exposure (i.e. its conditional expected loss) is equal to the product of a conditional PD and a “downturn” Loss Given Default (LGD) [a parameter that reflects adverse economic scenarios]. As discussed earlier, the conditional PD is derived by means of a supervisory mapping function that depends on the exposure’s average PD.

What does this mean? 

First, that the risk weights have nothing to do with the risk premiums banks charge. 

Second, the real dangerous unexpected losses in banking are most certainly inverse to the expected probabilities of default. The higher the expected losses the lower can we expect the probable size of the bank exposure to be… meaning, the safer an asset is perceived to be, the higher the possibilities of something really dangerous unexpected happening. In short this all does not make any sense.

Third, that this would not have been so serious if there had been an adjustment for portfolio risk, since most probably what is perceived as safe commands larger exposures...

but then, to top it up:

2. The risk weights are portfolio invariant... Holy Moly!

I cite directly from “An Explanatory Note on the Basel II IRB Risk Weight Functions” July 2005 (page 4) 

“The Basel risk weight functions used for the derivation of supervisory capital charges for Unexpected Losses (UL) are based on a specific model developed by the Basel Committee on Banking Supervision (cf. Gordy, 2003). The model specification was subject to an important restriction in order to fit supervisory needs: 

The model should be portfolio invariant, i.e. the capital required for any given loan should only depend on the risk of that loan and must not depend on the portfolio it is added to. This characteristic has been deemed vital in order to make the new IRB framework applicable to a wider range of countries and institutions. Taking into account the actual portfolio composition when determining capital for each loan - as is done in more advanced credit portfolio models - would have been a too complex task for most banks and supervisors alike. The desire for portfolio invariance, however, makes recognition of institution-specific diversification effects within the framework difficult: diversification effects would depend on how well a new loan fits into an existing portfolio. 

As a result the Revised Framework was calibrated to well diversified banks. Where a was calibrated to well diversified banks it is expected to address this under Pillar 2 of the framework. If a bank failed at this, supervisors would have to take action under the supervisory review process (pillar 2). 

What does this mean? 

That the benefits of diversification are completely ignored... that the risk weights have nothing to do with the size of the exposure… all because to consider diversification, that “would have been a too complex task for most banks and supervisors alike”, and so “the Revised Framework was calibrated to well diversified banks.” 

But, if a bank fail to be well diversified, then the supervisors, those who have just been deemed as not being able to understand what diversification is, shall address the problem under Pillar 2 of the framework, the “Supervisory Review Process.” Basel II (page 158) 

And if all that does not sound like sheer Kafkaesque lunacy, you tell me. 

As a result we then have portfolio invariant credit-risk-based equity requirements, which allow banks to hold less equity against safe assets than against risky assets, even though all major bank crises in history have never ever resulted from excessive exposures to what was perceived as risky, but always from excessive exposures to what ex ante was perceived as safe.

And that led to much lower equity requirements for what ex ante is perceived safe than for what is perceived risky.

And that caused banks to be able to leverage much more their equity, and the support society gives them, with assets ex ante perceived as safe than with assets perceived as risky.

And that caused banks to be able to generate much higher risk adjusted returns on equity with assets ex ante perceived as safe than with assets perceived as risky.

And that meant that banks would lend too much and at too easy terms to those perceived as safe, like to "infallible sovereigns" and the AAArisktocracy, and too little in relative too harsh terms, to those perceived as risky, like to SMEs and entrepreneurs.

With bank regulators like these… who need enemies?

And please read the Explanatory Note and consider what a regular subordinated regulator would dare to opine about it :-)

PS. Risk of cyber-attack weighted equity requirements for banks make much more sense than the credit-risk weighted

Tuesday, April 21, 2015

Requesting from the Members of the Royal Statistical Society a much needed Statistical Literacy Initiative

Anjana Ahuja yesterday pointed out in the Financial Times that you have launched the #ParliamentCounts campaign, offering all MPs a free training course in statistics. What a marvelous and commendable Statistical Literacy Initiative.

In reference to it may I also get your attention to briefly expose a very serious error in current bank regulations? The error is not only making our banks more dangerous, but is also seriously distorting the allocation of bank credit to the real economy. And, you the Royal Statistical Society, can definitely help to do something about it.

I refer to the pillar of current bank regulations, namely to what is known as the capital requirements for banks; or more precisely described the portfolio invariant credit-risk-weighted equity requirements for banks.

Its essence is to force banks to hold more equity against assets perceived as risky than against assets perceived as safe. Although it intuitively sounds correct, the following simple analysis of the only three possible outcomes, should suffice to illustrate the huge mistake. 

Outcome 1: The perceived credit risk is correct. Is this dangerous for banks? It should not be.

Outcome 2: The real credit risk turns out to be less that the perceived credit risk. Is this dangerous for banks? Absolutely NOT!

Outcome 3: The ex post credit risk turns out to be higher than the ex ante perceived credit risk. Is this dangerous for banks? YES!

And of course, the smaller the ex ante perceived credit risk has been perceived, the larger is its ex post potential danger.

Therefore regulators should have based their credit risk weighted equity requirements for banks, on the consequences of the real credit risks turning out to be higher than the perceived credit risks.

Unfortunately, the regulators based their portfolio invariant credit risk weighted equity requirements for banks solely based on Outcome 1, namely on the perceived risks being correct.

And now, facing clear evidence of how wrong their regulations are from a bank safety point of view, and of how much these credit-risk differentiated equity requirements distorts the allocation of bank credit, the regulators still fail to even acknowledge the existence of this mistake.

Dear members of the Royal Statistical Society, would you please help me to shame the regulators into waking up, before even more damaged is done? 

I am absolutely sure that if you send the Basel Committee, and the Financial Stability Board, and the IMF, a brief memo suggesting that instead of looking at the risk of the assets of banks, one needs to look at the risks of banks not being able to manage the risks of the assets of the banks, you would have significant more impact than what my little voice has been able to achieve during the last decade.

Please do this for the sake of our children and grandchildren and who are the ones who will most suffer the impact of this horrible regulatory mistake.

Yours truly,

Per Kurowski

PS. You will have to excuse me but, not being able to control my obsession with making this horrible mistake known to the world, I am making this letter public on my blog and on some social media.

@PerKurowski
A former Executive of the World Bank (2002-2004)

Sunday, April 19, 2015

Bank regulators de facto create another type of illicit financial flows

When regulators allow banks to hold less equity against what is perceived as safe than against what is perceived as risky then they increase substantially the flow of bank credit to the infallible sovereign and the AAArisktocracy, and decrease substantially the flow of bank credit to SMEs and entrepreneurs.

That is an odious regulation that favors those already favored; and an odious regulatory discrimination against those already naturally discriminated against, precisely by virtue of being perceived as risky.

That impedes banks to allocate credit efficiently to the real economy and, by killing the opportunities of the risky to have fair access to bank credit, increases inequalities. 

And so those regulations could be accused of de facto stimulating the creation of another type of illicit financial flows.

PS. And all for nothing, since never ever has a major bank crisis ever resulted from excessive exposures to something perceived as risky, they have all, no exceptions, resulted from excessive exposures to something erronously perceived as safe. 

Saturday, April 18, 2015

The importance of being ignored… by for instance the Basel Committee, the IMF and the Financial Times

The pillar of current bank regulations is risk weighted capital requirements for banks; or more exactly portfolio invariant credit risk-weighted equity requirements for banks. It signifies banks are allowed to hold much less equity against assets perceived as safe, than against assets perceived as risky.

Though intuitively it might sound extremely correct, it is extremely flawed, primarily for three reasons:

First, it just doesn’t make any sense from the perspective of making the banking system safe, since all major bank crises have resulted from excessive exposure to something perceived as safe but that ex post turned out not to be; and none from excessive exposures to something ex ante perceived as risky.

Second, allowing banks to leverage their equity, and the support the society lends them, differently, depending on perceived credit risk already cleared for by other means, introduces a tremendous distortion in the allocation of bank credit to the real economy.

Third, by discriminating the access to bank credit against those who by being perceived as risky are already naturally discriminated against, it kills equal opportunities and thereby fosters inequality.

I have voiced my furious objections to that regulation, for way over a decade, to no avail.

The indifference with which my arguments have been met, by the Basel Committee, the Financial Stability Board, the IMF, the Fed, the Bank of England and all other institutions related to bank regulations; plus that of medias such as the Financial Times, has undoubtedly been a source of frustration. And worst has it been when I am told that my questioning is obsessive, something which I have never negated, but when I have always felt that the way they have ignored this issue shows even more obsessiveness.

But, little by little, I have started to appreciate the fact that being ignored, has added a much more important aspect to my criticism. Had regulators accepted and corrected for their mistakes immediately, that would have undoubtedly been good. But at the same time that would also perhaps have shed less light on the importance issue of how little contestability and accountability there exists in institutions ruled by a self-appointed technocrats.

And so, when the world wakes up to the horrendous implications of this regulatory risk aversion, it might hopefully also be able to wake up and correct for the horrible regulatory procedures... and for the sort of bias in favor of regulators that many in the media show.

Then perhaps the SMEs and entrepreneurs could get a real hearing about their difficulties to access bank credit in Basel, in Davos or in Washington during the Spring or Annual Meetings of the IMF and the World Bank. 

Wednesday, April 15, 2015

The World Bank should act as an Ombudsman for our children and grandchildren

The Basel Committee for Banking Supervision (BCBS) is in charge of developing bank regulations that are applied by more and more countries around the world. That has increased the coherence and reduced somewhat the regulatory competition between countries. Unfortunately, it has also introduced a serious systemic mistake. 

The pillar of the BCBS’s current bank regulations, is the risk weighted capital requirements for banks; something which for more preciseness, should be termed the Portfolio Invariant Credit-Risk-Weighted Bank Equity Requirements. In essence it indicates: more-credit-risk-more-equity / less-credit-risk-less-equity. 

Though intuitively it sounds very reasonable, it contains two fundamental flaws.

First, the risk-weights used are based on the default possibilities of the assets of a bank, and not on a real analysis of what has caused the major bank crises in the past. In this respect it should be noted that the bank assets more likely to cause a major crisis, are not those perceived as risky, but those that are erroneously perceived as safe.

Second, much worse, allowing banks to leverage their equity, and the explicit and implicit support these receive from taxpayers, differently, depending on credit risks already cleared for with interest rates and size of exposures, seriously distorts the allocation of bank credit to the real economy. In essence it causes the bank system to lend too much and at too low rates to what is perceived as safe, like for instance to sovereigns and what I have termed as the AAArisktocracy; and too little, at relatively too high interest rates, to what is perceived as risky, like for instance to SMEs and entrepreneurs.

The origin of this mistake can primarily be traced to that regulators never really defined the purpose of our banks, beyond that of each one having to be safe. With that the regulators completely ignored that banks represent one of the most important agents through which the society distributes its savings, and the risk-taking that the economy needs in order to move forward, so as not to stall and fall.

Any regulatory interference and distortion of how bank credit is allocated, is very dangerous, and so, if it is to be considered and allowed, one needs to make certain that, at the very least, it is in pursuit of some extremely worthy purpose.

In this respect it could be illustrative, instead of credit-risk-weights, to think about the potential-of-job-generation weights, or environmental-sustainability-weights. That would allow the banks to earn their highest risk-adjusted returns on equity, financing what could most matter to us.

The World Bank, as the world’s premier development bank, must know that risk-taking is the oxygen of any development. It therefore has an enormously important role in supervising bank regulations from the point of view of how banks: promote development, allow for fair and inclusive access to finance, advance poverty reduction, generate jobs and help to bring on environmental sustainability.

The challenges loom large. Current credit risk based equity requirements, by making it harder than need be for those perceived as “risky” to access bank credit, kills opportunities and thereby promotes inequality. And, with its bias against credit-risk, it guarantees that banks will not finance sufficiently the “riskier” future, but mostly keep to refinancing a “safer” past.

“A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926.

The credit-risk-aversion present in current regulations could seem adequate for someone retired with a remaining short life expectancy. It is highly inadequate though, in fact dangerous, when set in the context of the needs of future generations. And in this respect I urge the World Bank to cast itself much more in the role of being the Ombudsman for our children and grandchildren.

And let us, somewhat older, never forget that much of what we can enjoy today, is the direct result of the willingness of the generations that preceded us to save and to take risks. We have the same duty… God make us daring!

@PerKurowski

PS. Here a statement closely related to this issue that I delivered as an Executive Director of the World Bank March 10, 2003

Monday, April 6, 2015

Follow my adventures battling the Basel Committee for Banking Supervision (and the Financial Stability Board)

Banks when deciding to give credit to safer or to the longer riskier, used to clear their risk adjusted rates freely, with no regulatory interference. That was before the outright insolent Basel Committee came along wanting to manipulate, and concocted that banks could leverage their equity 60 times or more to 1 on assets considering as safe, while not more than 12 to one on assets perceived as risky. And so of course, it couldn’t be any other way, banks lend too much at too low rates to what is ex ante perceived as safe, and too little at too high relative interest rates to what is perceived as risky.

And this is now destroying our economies.

Recently the Basel Committee released a consultative document titled “Revisions to the Standardised Approach for credit risk”. 

And below are my comments to that document. You might want to follow me and see what the Basel Committee answers, if it answers. I have been trying to extract a reaction from them for over a decade now, but no such luck.

March 27, 2015: Comments on the Basel Committees’ consultative document “Revisions to the Standardised Approach for credit risk”.

Sir, I object the whole document “Revisions to the Standardised Approach for credit risk”, on account that it does not yet acknowledge, much less correct, the most fundamental mistakes with the whole approach of setting bank equity requirements based on credit-risk weights.

The mistakes I refer to and that I would briefly like to point out are:

1. When referring to the “probability-of-default estimates” of borrowers and assets… it ignores that bank already manage and clear for these perceived credit risks, and so that these probabilities have little or nothing to do with the probabilities of a bank having problems. 

Again, the regulator has no business looking at the basically the same credit risks bankers are seeing and clearing for through interest rates, size of exposure and other terms. The regulator should look at the risk of banks not perceiving the credit risks correctly or not managing these correctly. If you do so you can empirically establish that all major bank crises are derived from excessive exposures to what has been erroneously perceived as safe, and not from what has been correctly perceived as risky. And, in this respect, the realities would point 180 degrees in the opposite direction… higher equity for what is perceived as safe. 

2. The regulator has not considered that allowing banks to leverage their equity, and the support they receive from taxpayers, differently depending on the perceived risk of the borrower/asset, introduces a violent distortion of the allocation of bank credit to the real economy. This because it allows banks to obtain different risk-adjusted returns on equity that what would have been the case without this regulatory distortion.

In the medium and long term, in an environment where bank credit is misallocated, there will be no safe banks. In a game of roulette, every bet has exactly the same expected value, and that is why the game works and survives. Changing the payout rates in roulette, by using something like your risk-weights, would crash a casino in seconds… and with “casino”, I refer to our economies.

3. The regulator has de facto exceeded whatever authority it could have been given, by for instance setting the risk weight for central governments at zero while imposing a risk weight of 100 percent on the loans to an unrated SME or entrepreneur. That can only be explained in the context of a statist ideology. That has transformed the “risk-free rate” into a subsidized risk-free rate. 

In fact, it is morally reprehensible for regulators to discriminate the access to bank credit in favor of “the safe” and against “the risky”… that creates a regulatory-subsidy to the safe and a regulatory-tax on the risky. By limiting the opportunities of “the risky” to have fair access to bank credit, the regulator is de facto increasing the inequalities in the world.

4. To top it up, the risk-weighted equity requirements are portfolio invariant, something that is absolute lunacy, since it ignores both the benefits of diversification and the dangers of excessive concentration.

5. As I warned in a letter in the Financial Times in January 2003, the excessive importance given to some few human fallible credit rating agencies introduced a serious source of systemic risk. What we read in this proposal only increases the complexity, and therefore increases the possibility of gaming the regulations, and increases the distortions, all without really diminishing any systemic risks. 

6. Borrowers are always interested in presenting themselves to the banks as being a low credit risk, in order to obtain lower risk premiums. And bankers used always to be interested in questioning the creditworthiness of the borrowers, in order to obtain higher risk premiums. That struggle helped to allocate bank credit efficiently to the real economy.

But, credit-risk-weighted equity requirements for banks and changed the relations. Now more important for the risk adjusted return on bank equity than the negotiation of risk premiums with borrowers, is dressing up the credit operation in such a way so as to allow the highest possible leverage of bank equity. And so, instead of using the tensions between borrowers and lenders, regulators managed to align both of these parties against them. Not too bright!

7. The distortions are causing serious economic risks. Just an example of it, is that the liquidity provided by current QEs cannot reach “the risky”, those we perhaps most need bank credit to reach. It is saddening to now see your proposal, in the case of senior corporate exposures, to set the risk-weights in function of size… as if the larger you are the safer you are… ignoring that the larger and the safer they seem the more you will be hurt if something goes wrong. Why on earth should The Large have even better access to bank credit relative to The Small than what they would usually anyhow have? 

8. It is stated: “The credit risk standardised approach treatment for sovereigns, central banks and public sector entities are not within the scope of these proposals. The Committee will consider these exposures as part of a broader and holistic review of sovereign-related risks.” “Holistic” Ha! Don’t you understand that what is someone’s light risk-weight, becomes immediately someone else’s very heavy risk weight?

9. The document does not indicate any concerns with how to go from here to there. Basel III introduced the not risk weighted leverage ratio, which will act as an equity floor, and you are also currently consulting on “Capital floors: the design of a framework based on standardised approaches”. But, raising the equity/capital floor, while maintaining the roof of the credit-risk-weighted equity requirements, will only increase the distortions, and could cause irreparable damages to the economies. For a more figurative explanation I refer you to the movie “The drowning pool”.

I have some other objections, but, for the time being, these will do.

Regulators, please, before you keep on regulating, go back and define the purpose of banks. It has to be more than to just be safe mattresses. It has to at least include not distorting the allocation of bank credit. 

With these credit risk adverse regulations, banks are financing less and less the risky future; and only refinancing more and more the safer past. That has to stop, for the good of our children and grandchildren. “A ship in harbor is safe, but that is not what ships are for.” John Augustus Shedd, 1850-1926

In 1999, in a Op-Ed in I wrote: “The possible Big Bang that scares me the most is the one that could happen the day those genius bank regulators in Basel, playing Gods, manage to introduce a systemic error in the financial system, which will cause the collapse of our banks”.

We have already seen too many low-risk-weights AAA bombs detonate with disastrous consequences. So when are you bank regulators going to stop trying being the self appointed risk managers for the world? You’re doing a lousy job at it, and not being held accountable for it.

Per Kurowski

PS. What do I like in the document? Though subject to all my other concerns, like not agreeing with the risk weighing, I do like the CET1 ratio used when setting risk-weights for banks. That ratio indicates that the better capitalized a bank is, the less will other banks be required to hold equity when lending to it, so the better borrowing conditions it can obtained, thereby leveraging the usual market response. That looks like a relative unobtrusive way to nudge banks into being better capitalized.

@PerKurowski
A former Executive of the World Bank (2002-2004)

Did they get my comments? Well here is the reply I received:

Comments on Basel Committee documents open for consultation
Thank you, your comments have been successfully submitted
Name of institution/individual:
Per Kurowski
E-mail address:
perkurowski@gmail.com
Document:
Revisions to the standardised approach for credit risk - consultative document
Classification:
Public
Uploaded file:
Comments on the consultative document Revisions to the Standardised Approach for credit risk.docx

Wednesday, April 1, 2015

An indebted unemployed student’s story:

An indebted unemployed student: "At last I thought I had a reasonably good paying job that would make me be able to repay my student debt, and earn me something on top of that, for all the time and efforts I had invested in my studies. But, that was not to be, because the owner of the SME who was offering me the job, had his credit application denied by the local bank that had the most intimate knowledge of his business and plans. Much saddened, even despaired, I asked the employer I had counted on… How come?”

SME owner: “The banker told me that if he gave me the loan then, because I was officially perceived as risky from a credit risk point of view, regulators required him to hold much more equity than if he lent that money to an AA rated corporation or invested it in treasury bills. And, unfortunately, he did not have that equity.”

Indebted unemployed student: “What? In the home of the brave, banks are required to hold more equity against loans to the supposedly risky than against loans to the supposedly safe?” 

SME owner: “Yes, ever since the US signed up on the principles of the Basel Accord back in 1988, and especially after the approval of Basel II in 2004, that is how it is. Sorry my dear unemployed student loan debtor, there’s nothing I can do about it! I am just as sad and hurt.”

Indebted unemployed student: “But why would the regulators do a thing like that?”

SME owner: “Beats me. As far as I know all real big bank crises have never ever resulted from excessive loans to “risky” SMEs and entrepreneurs like me, these have always resulted from excessive bank exposures to what banks, and regulators, believed to be absolutely safe, but turn out not to be.”

Indebted unemployed student: “But that’s plain crazy!”

SME owner: “Indeed, it is an odious discrimination, and by killing opportunities it promotes inequality.  But, no one dares to question the regulators, especially when it has become so fashionable to question bankers… or perhaps the regulators are all just statists and love the idea that banks should foremost lend money to government bureaucracy, as well as to their intimate friends of the AAArisktocracy they usually see in Davos.”

This fictitious but sadly too real story, is sent upon request to Rep Elijah Cummings and Senator Elizabeth Warren 

PS. I have always believed students should be given access to student debt as if they were AAA rated, because although they might not have an AAA credit rating, they sure have an AAA rated purpose. That said, much much more important than their debts, are their possibilities of future jobs.

Can members of a mutual admiration club really tell each other the truth?

I refer to “The progress, pitfalls and persistent challenges of recent regulatory reform” by Sheila C. Bair, former FDIC Chair, and Ricardo R. Delfin, former Executive Director, Systemic Risk Council. It appears in “A force for good: how enlightened finance can restore faith in capitalism” edited by John G. Taft, 2015. 

I agree with many of the recommendations put forward, such as the need for less regulatory complexity, and of a system that could allow for the orderly liquidation of large complex financial institutions. 

But the authors also refer to “the Financial Stability Oversight Council (FSOC), an interagency body made up of the heads of the federal financial regulatory agencies, state regulatory representatives, an independent insurance representative and the head of the new Office of Financial Research. The FSCO is tasked with identifying potentially systemic risks…”

And here I must ask: Is FSCO structured in such a way as to be able to identify systemic risks arising from bad regulations?

Since the inception of the Basel Accord in 1988, the pillar of banking regulations has been credit-risk-weighted equity requirements for banks. These basically translate into offering banks better risk-adjusted returns on equity on what is perceived as safe, than on what is perceived as risky. By this the regulators approved to pay the managers of one of the societies most important retirement accounts, what is generated by means of bank credit, higher commissions for whatever returns coming from activities perceived as safe, or defined by regulators as safe, than from activities perceived as risky. That guarantees an excessive risk aversion that will lead to few jobs and very low retirement incomes for the whole of society.

And if that is not a monstrous systemic risk that has been embedded in current bank regulations what is? I doubt an FSCO, as just another member of the regulator’s mutual admiration club, can do anything about it.

But I might be wrong. Perhaps some “state regulatory representatives” will suddenly ask: Why on earth do our state chartered banks need to hold more equity when lending to our local SMEs and entrepreneurs than when lending to some distant borrowers?