The golden rules of banking
The Economist shares some views on banking and the (non) role of supply and demand in banking.
THE crisis has taught people a lot about the banking industry and the thought processes of its leaders. These lessons can be distilled into four golden rules.
1. The laws of supply and demand do not apply. When food producers compete to supply a supermarket, the retailer has the luxury of selecting the lowest bidder. But when it comes to investment banking, wages are very high even though the number of applicants is vastly greater than the number of posts. If the same was true of, say, hospital cleaning, wages would be slashed
An investment bank, like a supermarket, demands a certain quality standard: it will not hire just anybody. But whereas it may be easy to identify a rotten banana, it is harder to be sure which trainee will be the next Nick Leeson and which the potential George Soros. That gives executives an excuse when things go wrong. (full reading here).