Sunday, January 27, 2013

Big banks and operational risk

Big banks pose big risks. That has been clear enough in recurring banking crises. But the risks don't relate to credit or market risk alone. Bigness leads to problems with operational risk as well. This is the lesson from the huge finds that banks are paying out for the Libor scandal, money-laundering etc. The underlying reason is the same: lack of incentives to curb violations of law or regulations when you know criminal prosecution will not follow. Just pay out a big fine, which is still small in relation to profit, and move on.

More in my ET column, It's fine to be a big bank.

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Sir, how come you do not mention the losses at SBI and the public infusion of money every year by the govt? That should cause as much scandal as the Libor issue. Actually much more, as it is institutionalized inefficiency, corruption and lack of accountability for years without end. Why should SBI not be privatized like ICICI or HDFC?

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