How the doyens of international banking continue to be fined for unethical practices..

Federal reserve fined major banks worth $1.8 billion yesterday.

The press release said:

The Federal Reserve on Wednesday announced it will impose fines totaling more than $1.8 billion against six major banking organizations for their unsafe and unsound practices in the foreign exchange (FX) markets. The fines, among the largest ever assessed by the Federal Reserve, include: $342 million each for UBS AG, Barclays Bank PLC, Citigroup Inc., and JPMorgan Chase & Co.; $274 million for Royal Bank of Scotland PLC (RBS); and $205 million for Bank of America Corporation. The Federal Reserve also issued cease and desist orders requiring the firms to improve their policies and procedures for oversight and controls over activities in the wholesale FX and similar types of markets.

The Federal Reserve is requiring the firms to correct deficiencies in their oversight and internal controls over traders who buy and sell U.S. dollars and foreign currencies for the organizations’ own accounts and for customers. As a result of these deficient policies and procedures, the organizations engaged in unsafe and unsound conduct by failing to detect and address improper actions by their traders. These actions included the disclosure in electronic chatrooms of confidential customer information to traders at other organizations. Five of the banks failed to detect and address illegal agreements among traders to manipulate benchmark currency prices. Bank of America failed to detect and address conduct by traders who discussed the possibility of entering into similar agreements to manipulate prices. In addition, the Federal Reserve found UBS, Citigroup, JPMorgan Chase, and Barclays engaged in unsafe and unsound conduct in FX sales, including conduct relating to how the organizations disclosed to customers the methods for determining price quotes.

The Federal Reserve is requiring the six organizations to improve their senior management oversight, internal controls, risk management, and internal audit policies and procedures for their FX activities and for similar kinds of trading activities and is requiring four of the organizations to improve controls over their sales practices. The Federal Reserve is also requiring all six organizations to cooperate in its investigation of the individuals involved in the conduct underlying these enforcement actions and is prohibiting the organizations from re-employing or otherwise engaging individuals who were involved in unsafe and unsound conduct.

The Federal Reserve is taking action against UBS, Barclays, Citigroup, JPMorgan Chase, and RBS concurrently with the Department of Justice’s criminal charges against these five organizations related to misconduct in the FX markets. Bank of America was not part of the actions taken by the Department of Justice and has not been charged by the Department of Justice in this matter.

The Connecticut Department of Banking has joined the cease and desist provisions of the Federal Reserve’s action against UBS, which has a branch located in Stamford, Connecticut. The New York Department of Financial Services has taken a separate action against Barclays and its New York branch based on FX-related conduct.

Phew! Such crazy practices.

It is amazing to see all these doyens of banking being fined over and over gain. For years they have lectured banks in India and elsewhere (and continue to do so) on the need to improve risk management practices, trading systems, increasing efficiency, productivity and blah blah blah..But look what they have been doing all these years. Rigging nearly all practices of banking in the name of profitability and efficiency.

In an interesting article of Bloomberg computes total fines paid by banks across countries to be around $10.8 billion. This simply means govt. treasuries have become richer by that amount as these fines are collected by central banks and they pass it on as profits to govts.

The foreign-exchange settlements are very hard to keep straight so I made a little scoreboard of the various fines that various banks have paid to various regulators:

fx fig 1

I hope it’s comprehensive! But I probably missed some regulator somewhere. Anyway, $10.3 billion seems like a lower bound on fines paid for FX manipulation.

That is a lot of money!


More context. The U.S. Office of the Comptroller of the Currency puts out a quarterly report on bank trading revenue. From the OCC’s numbers, JPMorgan seems to have paid fines equal to just over half of its own total FX trading revenue for the two-and-a-half year period it was involved in FX manipulation. If you use the rule of thumb that half of revenue goes to compensation expense, then JPMorgan would have been better off not having an FX business for those years.

Or some more context: JPMorgan’s $1.9 billion in fines seem to be the work mostly of one trader.Oops!

So it’s a lot of money. The fines accompany criminal guilty pleas for Citicorp, JPMorgan, Barclays, Royal Bank of Scotland and UBS. It is easy to say — and I have said — that those guilty pleas feel likecuriously weightless things, a cost of doing business rather than a serious deterrent. And today’s pleas come with all of the necessary waivers to allow the banks “to continue managing mutual funds and raise capital quickly,” meaning that they won’t have too many consequences beyond the fines.But the fines are really big! If you are a manager or shareholder of a bank, you would strongly prefer not to pay these fines. But, yes, I know, I know: They keep paying more of them. 

The settlements today, with the Department of Justice and the Federal Reserve and the New York Department of Financial Services and also a few others, are mostly for an antitrust conspiracy conducted in electronic chat rooms where traders from different banks would meet to discuss their client orders. We talked about this six months ago when most of these banks settled similar charges with other regulators. Ordinarily here I would provide you with an assortment of dumb trader quotes, but since I did that six months ago I will skip it today.

Read the whole article. It is actually really bad to see a business based on trust go this unethical.

And we keep hearing experts from these organisations saying Indian banking needs to align itself to global best practices! Even experts from India write reports telling us the same. It is all such a joke..

One Response to “How the doyens of international banking continue to be fined for unethical practices..”

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