'Big bet' banking has to go

By Money Matters Editors

What’s another aspect of banking that has to change? Banker attitudes toward banking.

Earlier, Money Matters wrote about how the ‘heads the banks win, tails the taxpayer pays’ philosophy has to end. That has to be accompanied by an end to another problematic industry practice: excessive risk.

Here’s how banking stands now. Banks encourage trading and loan officers to take excessive risk. For example, bank professionals will design complicated, derivative-based trading programs designed to take high risks: if the risks pay off, the bank wins and racks-up huge profits. If the derivative fails, the bank professionals are fired. Then they find another job with another bank, doing the same thing, doing the same thing, and the whole process starts over again.