Banks must learn from scandals

Over the last decade we’ve seen bank after bank around the world being fined for undertaking a variety of highly profitable, illegal, and highly questionable activities.

In some cases the fines have gone into the hundreds of millions, even into the billions.

In 2012 Barclays paid out hundreds of millions in fines and USB has so far paid out over a billion for issues associated with fixing the Libor market. Lloyds, RBS, ICAP, Rabobank, JPMorgan, Credit Suisse, and Deutsche Bank all paid substantial amounts, too.

Has it stopped banks in general from misbehaving? The answer would appear to be that it has not stopped them one bit. Scorpions will sting you even if they die themselves because that is what they do. It appears that banks do what they do because that is what they’ve always done and gotten away with it.

Last week it was suggested that banks behave badly all of the time and that it’s up to the regulators to keep them honest. You could add that it’s also up to the legislators and the US justice department to keep them on the virtuous path.

We can be sure that, left to their own devices and to light regulation, getting rich quick will once again become bankers’ priority.

Unfortunately fining banks is just a waste of time. Banks simply pay the fine, increase their fees and charges, and get the rest of us to pay. Then it’s back to business as usual. Bankers play fast and loose with the rules.

Banks make megabucks profits. Individual traders make millions in bonuses. The view is that no one gets hurt so no one goes to jail.

The truth is that millions get hurt, some directly but most indirectly — collateral damage, if you will. The fact is that, until individuals can expect to go to jail if they get caught, this behaviour will continue.

There have been token imprisonments both here and elsewhere. Only last week we read of Tom Hayes, a trader in the UK, who has been imprisoned for 14 years for his part in the Libor market-fixing scandal. He was found guilty of being a prime mover in a scheme to artificially rig the Libor, the interbank rate on which other rates are based. That affected everyone.

At USB, over the course of four years, he had made the bank some £200m (€282.6m). He earned £1.3m. Hayes had joined from Citigroup where he had earned £3.5m over a period of nine months. Some people — who should know better — suggested that the penalty was way too high.

Here in Ireland many first became aware of banking market fraud almost 14 years ago, when the $691m in losses of rogue trader John Rusnak at AIB’s former US unit, Allfirst, came to light.

However, in Ireland there have been many other types of banking scandals — such as overcharging — which do not involve fraud but do inflict huge misery on many victims.

The latest one to come to the surface is at Permanent TSB. It applied the wrong interest rates to hundreds of customers over many years and then blamed them for the bank’s own mistakes. The group said 1,372 customers were affected across Permanent TSB and its Springboard Mortgages unit because the bank had wrongly informed them about their rights under their contracts when they had requested changes to their mortgages between 2006 and 2011.

Permanent TSB — in plain sight — had pursued its own customers through the courts. The Central Bank has now finally told Permanent TSB to compensate its customers. Some of these customers have lost their homes to repossession. People have suffered greatly. Will the banking scandals continue?


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