Get the government out from the banking

What is the reason EU is trying to regulate the bank bonuses? Aren't the banks private enterprises, and isn't it a right to shareholders to decide about compensations? And are the bonuses the main problem of banks today?

Obviously EU is seduced by the specter of statism and socialism. Everything private is bad and contains risks for the society. And everything under state control is secure and good...

Looking at the fate of government regulated sectors and stare owned enterprises, the conclusions are some different from this assumption.

The only result from any intervention in salaries of financiers will result in an enormous brain leak to more liberal financial centers. Europe is not the only possible place to work in a bank. In fact it is even losing ground in favor to Asia for instance. So it needs a more liberal system and not most regulated.

It is a very sensitive question to save defaulted banks, by using public money, and after that to find the size of bonuses, received before that from the bankers. But the problem is not with the bonuses, but with the saving. After the first foolish decision was made (too big to fail so save at any price), the second one follows (limit the bonuses).

In fact the pure market solution is every owner to be responsible for his decisions. So when a bank is to go bankrupt, it must go and no need to be saved. The failure is the natural cure for bad decisions so if you have hired bad managers and paid them high salaries, it is your problem, and you will pay for it.

As we know the money of common people in banks are insured and guaranteed. That is the only needed protection by the state. In fact this protection can be additionally expanded with making the participation of private insurers bigger. These insurers will observe carefully the banks and impose higher premiums to riskier banks. This will naturally regulate the risk by market mechanisms. In fact this will make the cost for taxpayers even lower in a case of repaying the money to depositors.

The brain-leak if it happens, will worsen the quality of banking services and may even increase the risks for the money put in banks. The banking is not an easy job, it is a complex job and needs well qualified and talented professionals. The lack of them means a higher risk. The banks work on a global market and compete each other. Very often a profit for a bank means a loss for another bank. So the bank having worse staff will risk more being outplayed. It is a ruthless competition and every foolish intervention will help the competitors.

The banks need not an increase, but a decrease of government intervention. The bailouts create a moral hazard and increase the risk. The brain-leak does the same. So, please get out this useless policy. Get the government out from the banking... Just a modest advice...

Feb 19th 2013

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