Thursday, August 9, 2012

Crime and Banking

That Retired Guy (TRG) has already posted about banking culture and how it has created the latest mess.  In that post, he emphasized how banking culture had degraded to a point where fiduciary duty became a quaint joke, he also eluded to the presence of fraud and corruption.  We are now learning about some of the horrendous crimes that came as a result (for example, see here and here, or just look at this post from The Big Picture).  It should come as no surprise really when you think about the culture that was cultivated over the last 30 years in banking.

In TRG's opinion, the future will bring us a banking industry that once again becomes mundane, as it was in the 1950's or 1960's.  It will likely take some major regulatory changes to achieve this, but the public outcry and Dodd Frank Act have shown that it CAN happen (even if, so far, there has not been nearly enough done so far).  In a way, the fact that we are even hearing about serious and systematic lawbreaking by the banks is a result of a change in public mood that no longer allows the regulators to quietly accept a fine and forget about everything they discover.

Of course the criminal behavior has been going on for years, and the regulators have frequently uncovered it, but the standard practice was to quickly settle with the bank.  The settlements allowed for a reasonable sized fine (banks have paid billions) but the banks were allowed to deny guilt, and most importantly, avoid making the details of the transgression public.

Things are slowly changing.   The public mood has now come to see banking for what it is, and that is pushing the regulators to do their jobs.  In banking speak, the regulators are "growing a pair of balls", and latest action by Benjamin M. Lawsky against Standard Chartered Bank is a great example.  Another example is  Judge Jed S. Rakoff (a TRG hero) and his rejection of the settlement with Citibank.

TRG is thrilled to see the tide changing, but disappointed that the change is not faster.  There are lots of people who should be behind bars, but even that is not enough.  The regulation must change, DRASTICALLY (Dodd Frank is not enough).

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