FT columnist John Kay thinks that comparing banks to casinos is unfair … to casinos. Casinos that fleece customers are shut down. Banks that fleece clients continue to operate, often with a government bailout.
[W]hat would happen if employees of a London casino were found colluding to rig games for the benefit of the house, and particularly themselves? The police would arrive in force, the company would lose its operating licence and senior management would be excluded from the industry.
We know this because it has happened. Twice. ….
These crackdowns provoked predictable warnings of regulatory overkill: no one would invest in the industry again; London’s tourism sector would be destroyed. Neither of these fears had substance. Las Vegas and Macau may be the glitziest gaming resorts, but the destination of serious gamblers today is London, where margins are slim but profits high and tables famously honest. One of the rules that keeps them that way is strict separation between the house and the punters: the bank’s interests are differentiated from and disclosed to the players. Another is that senior management and the company are unequivocally responsible for the behaviour of their employees. Of course, any large organisation will sometimes make a hiring mistake, and rectify it quickly. ….
Casinos attract greedy people with deficient ethics: the fear this engenders frames regulation, the obligations we impose on executives and the culture we expect from operating companies.
Perhaps banks should operate to standards as high as those of casinos. There are two main arguments for splitting the utility of retail banking from the trading casino. One is to stop croupiers gambling with house money; the other is the incompatibility of trading and banking cultures.
John Kay, “‘Not on my watch’: applies to banks and the navy“, Financial Times, 4 July 2012.
This column originally appeared in the Financial Times, 4 July 2012.
Tags: John Kay