If only bank regulators had taken their clues from fixed odds betting terminal regulators.

Sir, Henry Mance and Camilla Hodgson write about the reduction of The government announced last year that it would reduce “the maximum stake on fixed-odds betting terminals — such as roulette — from £100 to £2 to tackle problem gambling.” “Problem gambling shake-up set to be brought forward” October 15.

Of course that will operationally distort fixed odds betting terminal playing, slowing it down, but by keeping the odds as designed for the game, meaning every bet having exactly the same probability adjusted payout, it will not alter the nature of it. 

We can only wish our current bank regulators had used a similar route because these, by allowing banks to leverage assets differently based on their perceived (or decreed) credit risk, actually determined that banks would obtain higher risk adjusted returns on equity on assets perceived as safe than on assets perceived as risky… and that has clearly distorted the whole nature of banks, when fulfilling their expected role of allocating credit efficiently to the real economy. How long would the game of roulette have survived such regulations?

In terms of betting on horses at the racetrack that would be like handicap officials taking off weights from the stronger and faster horses and placing these on the weaker slower ones. How long would horseracing tracks survive such distortions?

In terms of our ordinary golf that would be like handicap officials giving more strokes to the better players than to lousy players like me. How long would our golf clubs survive such distortion?

What’s going to happen to our bank systems? If these regulations persist, they are going to implode on some especially excessive exposures, to what is especially perceived (or decreed) as safe, against especially little capital. No doubt about it!

@PerKurowski

No casino roulette game would survive a Basel Committee kind of manipulation of the winnings of different bets

Sir, Adam Kucharski writes: “When math students at MIT discovered a lottery loophole in 2005, they formed a company — By the time the lottery was discontinued, they had… brought in a pre-tax profit of $3.5m.” “Investment and betting require similar skills — and luck” May 6.

The expected payout for every bet in roulette is exactly the same, and that’s why roulette has not been discontinued. So how long would Kucharski expect roulette to last if some regulators decided to multiply by some factor the winnings on the low paying “safe” bets, so that player could play for a longer time? Not long eh?

But that is exactly what bank regulators did when they allowed banks to leverage their equity more with what was perceived, decreed or concocted as safe, like when playing a color, than with what was viewed as risky, like when playing a number.

And so when Kucharski writes: “The boundaries between luck and skill, and gambling and investment, are not defined by industry or activity, but rather by the person playing, and who they are playing against”, we need to add, “and by the regulators”… especially if the regulators with hubris think they can distort for the better.

Unfortunately the bets of the banks are much more important than the bets in a casino. A bank, when it does not play a “risky” number, is in effect not giving loans to risky SMEs and entrepreneurs, those who might find the way of helping us to move forward the economy, so as it does not to stall and fall. And the banks, when they play too much the safe bets, AAA ratings, housing finance and sovereigns like Greece, then they will dangerously overpopulate safe havens, and cause crisis like the 2007-08 crash.

PS. Sports? What would be of golf if the handicap commission awarded the great players more strokes than what the lousy ones like me got?

PS. Sports? What would be of horseracing if the handicap commission reduced the weight the fast running horses had to carry, as a reward, and increased that of the slower horses, in punishment.

@PerKurowski ©