John Kay

If financial institutions are to survive, they must behave more like supermarkets

Government underwriting of deposits should be matched by assets of comparable quality. Otherwise the mismatch of risk provides an unjustifiable public subsidy to the banking sector.

The Reform of Banking Regulation
We should spend less time trying to ensure that our regulators can regulate financial behemoths with turnovers bigger than the GDP of many countries and more on trying to redesign the financial services industry so that regulation focuses on the interests of the public as consumers of financial services.
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In the unlikely event that the G20 leaders can spare a few moments between photo opportunities and ritual denunciation of greedy bankers, they might give urgent attention to the question of how to extricate themselves from the underwriting of failed banks.

One lesson of recent events is that there seem to be no limits to the greed of the greedy. But perhaps the explanation is simply the one Madoff gave to the judge who sentenced him: “I made a mistake.”

Economists interpet rationality as consistency. But is this what is ordinarily meant by rationality – and is consistency really possible or desirable in a complex world?

It is particularly easy for those who work in financial institutions to make the mistake of believing that their success is the result of exceptional skill rather than good fortune. Until vanity is vanquished, I anticipate that diversification to the level of incompetence will continue to be a powerful element in business behaviour.

Do not waste any time on sermons and the prohibition. Even if the Good Lord himself were to deliver the Sermon on the Mount, He would be ignored. Hardened gamblers only give up when they have made the resolution to quit themselves.

If you want to understand how the City came to play such a central role in British economic and political life, why a crash was inevitable, and why the crisis is being resolved on terms which give so much and ask so little of the financial sector, this is the most important thing you need to understand: the influence of investment banks on modern politics and policy.

We should learn lessons from the Apollo programme and the people who design our television sets. Modular constructions are more robust.