UK banking scandals behind economic crisis
Former Barclays chief resigned amid the public outrage over the
Scottish news: UK banking scandals behind economic crisis
Analysis by Jamie Mann
The credit bubbles in the UK, Europe and the US have long since burst after decades of illusory economic growth in an under-regulated and over-leveraged global economy. But with easily the largest financial sector debt to GDP ratio in the world, Britain is nervously watching the eurozone crisis from the sidelines.
Many revelations have been brought to light in 2012 which have shown that financial malpractice, some of which has been sourced all the way to the Bank of England, cannot stay clandestine forever.
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Libor (London Interbank Offered Rate) rigging has seen major banks in the UK, the US and beyond profitably manipulate a market worth trillions of dollars by intentionally fixing the rates at which they borrowed from one another; news of this widespread corruption was preceded by public outrage at vast bailouts for the private institutions and the colossal bonuses awarded to banking chiefs in the midst of an economic crisis caused by the financial meltdown.
Last week, the Financial Services Authority (FSA) unveiled widespread deception by banks, building societies and financial firms; of the 22 institutions studied, all were involved in deliberately selling financial products to customers that were of little or no benefit to them – all to increase staff’s commision-based profits.
As the FSA seems to play down the mis-selling scandal, which stretches back for more than two decades, efforts to reform Libor have been warned against by giant corporate interests and investors.
Users of Libor, who have accrued an accumulated debt of over a staggering and incomprehensible $300tn face serious problems if the system is fundamentally changed.
Guy Sears of the Investment Management Association has said, “We need reform not replacement.”
The first bank to have its misgivings revealed was Barclays which was fined £290mn, shortly followed by the resignation of then-CEO Bob Diamond in June.
The reputation of Barclays bank has been undoubtedly smeared after its deep involvement in Libor-rigging emerged this year which provoked widespread public distrust and anger toward the banking industry.
A new YouGov poll, has shown the reputational score of Barclays has spiraled downward from +5 to -40 on YouGov’s “favourability brand index”.
The Royal Bank of Scotland are the next of many high street banks to face Libor investigation; the Financial Times reported last week that RBS faces fines of between £200mn- £300mn for their role in Libor manipulation.
Scotland’s largest bank has already fired several employees over rigging allegations. However, one trader in Japan hit back, insisting that he did not have the powers to manipulate the rate-setting index, and successfully sued RBS for unfair dismissal.
More recently, Tan Chi Min claimed that the bank’s internal checks were so light that “anyone can change Libor”.
Moody’s keeps UK banks on negative outlook
Rating agency Moody’s has this week kept UK banks on negative outlook, citing reasons such as eroding margins, regulatory fines and legal costs as well as the uncertain UK economy.
Without fundamental reform and independent regulation, the UK is set to continue incentivising malpractice resulting in more scandals such as Libor-rigging and product mis-selling.
What may be more difficult to resolve is an inherent public mistrust of the financial sector, fuelled by decades of clandestine activity which more often than not, works in the interests of the wealthy at huge cost to the public.
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