Twenty of the world’s biggest banks have paid more than $235bn (€213bn) in fines and compensation in the last seven years for a litany of misdeeds that has scarred the industry and is delaying its rehabilitation.
The scale of the payouts, equivalent to the annual economy of Greece or Portugal, has hampered banks’ efforts to rebuild capital, reduced dividends for investors, and cut the amount firms are able to lend.
The misconduct bill is expected to rise by tens of billions more dollars, and many politicians, regulators, and industry observers said more needs to be done to deter wrongdoing.
“Some things have changed, but I’d be pessimistic of a complete shift in culture without more measures being taken,” said Mark Taylor, dean of the business school at the University of Warwick in central England.
Taylor, a former FX trader and an adviser for the Bank of England’s Fair and Effective Markets Review, said bonuses are too high, there is little threat of jail for wrongdoers, and bosses are not held responsible.
“The problem is the incentive for cheating markets is massive. If you can shift a rate fractionally you can make millions and millions of dollars for your bank and then for bonuses,” he said.
“Once senior executives feel they are personally at risk if the culture doesn’t change, and individual traders feel they are at risk of being put in prison, then you’ll get a culture change.”
Despite the scale of fines and compensation paid by banks, relatively few individuals have been punished in any country.
Six banks were fined almost $6bn this week for rigging currency markets, adding to a list of sins ranging from traders manipulating markets to customers being lent money for a house they couldn’t afford or sold insurance they would never be able to claim on.
The misconduct bill for banks is likely to be inflated by more payouts related to US mortgage mis-selling and investigations into interest rates, FX trading, and other misconduct.
Lawyers said bank customers were also lining up lawsuits based on the latest evidence they often didn’t get the best deal.
Bank bosses say they are paying for past problems and standards have improved, while Britain’s financial regulator said imposing big fines does succeed in changing behaviour. However, they admitted it can take a long time to change culture in big organisations.
Britain is introducing new rules to make senior managers and board members directly accountable for their actions, which it hopes will pin responsibility for reckless behaviour on individuals.
High-profile scandals, such as FX and Libor, have seen record fines imposed on banks, but it is banks’ payouts to US and British customers mis-sold products that has swelled the misconduct bills.
Data compiled by Reuters, based on filings by regulators, government authorities, data from banks, and estimates of US litigation costs by analysts at KBW, showed US banks have paid $140bn in litigation and compensation for mortgage-related issues since 2008.
Bank of America has paid out twice as much as any other bank in settlements and compensation, with a bill of almost $80bn. Redress for UK customers from mis-sold personal insurance products has risen to over £24bn.
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