HOWTO: Punish Banks

Updated on Thursday, November 12, 2015

Barclays just got fined $453m for manipulating the electricity market in the US, following a £290m fine for fiddling Libor while HSBC is off money laundering with seeming impunity.

A $453m fine for Barclays is equivalent to $600 for the average US household, although if the average US household got caught manipulating markets they'd probably be in jail.

These relatively small fines aren't enough to really change behavior.

Unless we change how the fines are used. Put $453m in an incubator that funds banking startups and you can have 40 scrappy well funded companies trying to take the banks down. A handful of those will succeed and really do some damage. Every time a bank misbehaves it will be sowing the seeds of its own destruction.

Previously

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Instead of punishing bankers why not disrupt them?

Updated on Thursday, November 12, 2015

Instead of punishing bankers why not disrupt them?

I'm not the biggest fan of banks. Not content with crashing the world economy my own bank took the time to personally defraud me. The EU is currently planning to cap banker bonuses and this is just nuts.

It feels like an attack on the UK, where the lions share of our economy is banking and people coming to see the Queen. 

It feels anti-capitalist - why bankers? Why not footballers or movie stars or orthodontists? 

But mostly it feels like the wrong form of revenge, too easy to circumvent and ultimately likely to be toothless. Banks may say they have to pay outlandish bonuses to attract the best talent, but really it means the industry is ripe for innovation. Regulators should figure out and then remove barriers to entry (and throw up barriers to unfair competition, and hold competitions to encourage innovation) so that startups and software can eat the financial services sector.

Too big to fail all at once, but not too big to be disrupted into irrelevance. 

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