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November 23, 2010


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Ah the infamous management refrain: "We don't want to be a dumb pipe/plumbing/infrastructure..." The root of so much misallocation of capital... And why the hell not? Or put another way, if you didn't want to work for a utility, why did you not choose another career. The reality is that banks get to have their cake and eat it too (which is a massive failure of government) - ie they get all the advantages of being a regulated utility and natural oligopoly, without any of the constraints that other such businesses face. Why is it that a water company has a negotiated return on capital within a significantly constrained set of operating guidelines whereas banks are free to target whatever return they fancy and yet benefit from the protection of the same sort of barriers to entry that protect the water company. Banks - or more accurately, core banking services esp. payments - are utilities. And before too much angst is spilled, there is nothing wrong with being a utility. Of course bankers want to have their cake and eat it too - ah, human nature - but it is the job of society (ie government) to prevent this. I know this is a simplified view (what do you expect in a paragraph) but I believe the point is valid: the utility aspect of banks needs to be separated and ring-fenced from the rest of the services they provide. ATT was broken up. Not sure why banks should be immune...

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