Are the public still interested in reading about banking scandals? After the latest story breaking about the Treasury Select Committee’s investigation into manipulation of the foreign exchange markets I do wonder. It does seem a little harder this morning to dust off the keyboard and give my opinion on what seems to be a recurring story.
Maybe I should just re-hash some previous work. All I’d need to do is replace the acronyms. PPI becomes LIBOR and LIBOR is replaced with FOREX. Hit the submit button and take a half day to enjoy the early spring sunshine.
Have these scandals now become the norm? Are we just accepting this behaviour now with a sigh and a shake of the head?
Foreign Exchange (FOREX) Rigging Scandal
The latest banking scandal to hit the news involves the supposed rigging of rates in the foreign exchange markets. The foreign exchange market is used by large international banks for the trading of currencies.
London dominates the £3 trillion a day FOREX market and there are stories emerging that traders manipulated the markets by sharing information about customers’ orders before key currency rates were set.
The authorities have been investigating suggestions of collusion between traders to fix foreign exchange rates. Supposedly this collusion has been going on for years.
The latest scandal follows hot on the heels of the sensational revelations about banks rigging the vital LIBOR interest rate.
The latest scandal goes all the way up to The Bank of England, who have been accused of knowing about the rigging but doing nothing about it. This is something which The Bank of England deny.
Have the banks rigged a £3 trillion a day market?
Mark Carney, Governor of The Bank of England, faces the Treasury Select Committee to answer questions on the Bank of England’s role in the foreign exchange market manipulation.
This comes in the wake of the release of minutes from meetings dating back to 2006, which suggest that some officials were aware of the market manipulation.
10 banks at least were involved in the investigation including Barclays, RBS and the Bank of England, who have suspended a staff member.
Too big to fail
“Too big to fail” is a theory in economics which suggests that certain financial institutions are so large and so interconnected that their failure would be disastrous for the economy. The theory asserts that they must be supported and protected by government when they face difficulties, to prevent this happening.
The fundamental problem with these protective policies is they’re open to abuse by the companies who benefit from them. Who needs a risk management plan when there is no chance of failure?
After the latest banking scandal it seems that regulation is having absolutely no effect on improving banking practices. The banks break the rules, pay their fine and continue on. The fines are just a cost of doing business.
The cost of doing business
The implications of discovery of wrongdoing could be quite substantial in terms of the various settlements the regulators seek to extract.
Speaking on BBC’s ‘Today’ programme, Chris Wheeler, analyst at Mediobanca predicts that the cost to banks could be “up to £20bn”.
The banks are now scrambling to assist the regulators and reduce any fines they likely face. It seems the banks are happy to turn a blind eye to regulations, increase their profits and face any litigation. In fact banking analysts now factor this into a banks ongoing operating costs!
Stuart Gulliver, Chief Executive of HSBC, in an annual presentation to investors and analysts states:
“I think litigation and the risk of litigation is an ongoing feature of any banking business at this point”
This is the same Stuart Gulliver who was at the helm whilst HSBC were investigated and ultimately fined £1.2bn to settle allegations that it laundered money for drug cartels and broke sanctions in the US to allow terrorists to move money around the financial system.
It probably won’t surprise you to read that HSBC faced no criminal charges.
You may wonder how something like this is going to affect the man in the street and I think our blogger Mike Birkett sums it up perfectly:
“Big businesses like the credit card companies could end up being cheated out of a lot of money. And what costs them costs us all”
If a big business has taken a financial hit then this will trickle down to the consumer.
What costs them costs us all.