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SINCE the financial crisis, it has become commonplace to argue that banks should be run as utilities, not casinos. At least in terms of their financial performance, that seems to be happening. In 2006, the eight American banks that regulators have since labelled “globally systemically important” generated casino-like profits, with returns on equity of 30% on average, according to Oliver Wyman, a consultancy. They are currently managing less than 11%, and there is worse to come: the Federal Reserve recently announced plans to oblige them to raise extra capital. By one calculation that would reduce their return on equity to little over 8%, other things being equal—a lower return than America’s water companies make.

And other things are unlikely to be equal. American regulators continue to biff big banks with blistering fines. Then there is the requirement that banks produce “living wills”, explaining how they could be wound down if disaster strikes: the regulators have rejected every single “will” they have received so far as too flimsy. Making banks easier to close down will probably leave them even less profitable.

Nor are American officials the only ones still taking aim at bankers. The European Central Bank is on the verge of concluding a review of the books of banks in the euro zone, to determine whether they are hiding lots of dodgy loans. Those found wanting will also need to raise more capital. The Bank of England recently surprised many in the City with new rules allowing the “claw back” of bankers’ bonuses for up to seven years when things go wrong. More than half a decade after the financial crisis, bankers are still being bombarded with regulation and retribution (see article).

The quick and the undead
The result is an industry that has become safer and duller than many realise. America’s eight behemoths used to have 23 times more loans and investments than loss-absorbing capital; if a twenty-third of their assets had had to be written off, they would have gone bust. Now they are only 14 times “levered”. They are no longer allowed to speculate in financial markets on their own account; they may trade only on behalf of clients. Many of the deals they used to strike directly with one another must be funnelled through exchanges.

It is a good thing that the big banks are being forced to be safer. The trouble is that many have failed to change their business models accordingly. A few are adjusting to their straitened circumstances, shedding staff and assets as quickly as their star traders once accumulated fast cars and sharp suits. Morgan Stanley and UBS, for example, have slashed trading to concentrate on asset management. But many are hanging on to marginal businesses, in the hope that reviving economies and rising interest rates will make them profitable again. Since that hope is likely to be forlorn, more vigorous overhauls will be needed at the most sprawling outfits such as Deutsche Bank and Citigroup. Big divisions will have to shrink, notably in the ever-less-profitable business of trading bonds, currencies and commodities. Pay needs to fall, too. Given how much banks spend on salaries, squeezing them is an obvious way to boost profits.

Regulators could speed this transformation by giving bankers a clearer picture of what the eventual rules will be. Caprice, whether in the form of apparently arbitrary fines (of the sort New York specialises in), loopy taxes and rules on pay (the European Union) or constant regulatory tinkering (just about everywhere), only slows the necessary adjustment. But the big change must come from banks, which need to prepare for a future as part of the financial plumbing rather than as masters of the universe. No one ever said being dull would be fun.