In December a spat between the German finance minister, Wolfgang Schaeuble, and Deutsche Bank co-chief executive, Juergen Fitschen, cast doubt upon the seriousness with which some banking executives consider the industry’s position.
Schaeuble stated recently that banks are adept at evading rules. Fitschen objected that, while not unworthy of criticism, it is unfair to suggest that banks have not changed their spots since 2008. I am on Schauble’s side and here is why:
- At the time of their discussion, the introduction of a rule in the US to prevent banks backed by state money from making big bets – the Volcker Rule – was under a sustained assault by lobbyists employed by the banks. This is not a secret, the banks wanted
the Volcker Rule to be watered down or gone. The industry associations that lobby for them criticise this rule publicly and constantly. The plaintiffs are representing banks from all over the world with offices on Wall Street, so this could not be described
as a US-only phenomenon.
- Banks have moved large numbers of staff from their proprietary trading operations into trading operations that are not supposed to make a profit, such as risk management, or are not ‘motivated’ to trade in a proprietary manner. To my mind, this is a bit
like moving staff formerly known as ‘distillers’ into the role of ‘fruit and vegetables disposal’ during the prohibition era. These units are every bit as susceptible to taking a big hit as the profit making parts of a bank are, something the ‘London Whale’
- Banks are shutting down chat rooms because their traders have been caught discussing cartel activity in them. Now, given the successful manner in which these traders were caught by the chat rooms, I would have thought that they should remain open, so any
further unscrupulous activity could be caught.
- Fitschen’s point, that all of the cases coming up at present are ‘old’ is precisely because the banks have fought them vigorously for several years or have failed to spot long term abusive behaviour. In some cases bank surveillance systems have failed to
spot terms like ‘wash trades’ and ‘there are bigger criminals than us’.
- There has been a constant stream of fines for banks for the last 13 years, in an industry that has an appalling record for not having to go to court because it pays authorities not to. I understand that it is not considered bribery to avoid a criminal conviction
by paying someone a large amount of money to make it go away, but I do not understand why it is not.
Consider the following scenario: A man turns up for a job interview at your place of work. He has had to pay fines to the authorities every year for the last decade, although he points to a ‘no admission of guilt’ settlement attached to each one. His investment
activity has been partly responsible for a crash in the local economy despite having been warned about such issues. He has been banned from investing, but is appealing against it. The local community had to support him until he got back on his feet.
Would you give him a job because he says that is all in the past?