Non Stop Banking Scandals Are Dangerously Eroding Public Trust In The Financial System

I am old enough to remember when most people considered banks to be rock solid bastions of financial strength and integrity.  That was then, this is now, and a long running, non stop series of banking scandals seems to be dangerously eroding public confidence in the entire financial system.

In recent weeks we have seen JP Morgan lose almost $6 billion dollars trading speculative derivatives,  Wells Fargo fined for discriminatory lending practices, Barclays Bank admitting that they deliberately rigged interest rates (with the apparent consent of senior officials at the Bank of England)  and the collapse of Peregrine Financial (aka PFG Best) after its CEO confessed to stealing $200 million.

The most recent scandals were barely off the front pages when a Senate investigation revealed that executives of HSBC Holdings knowingly allowed potential terrorists and money launderers to maintain accounts at the Bank.  In the pursuit of profits, HSBC brazenly ignored multiple warnings of illegal banking activities by both regulators and the Bank’s own internal compliance team.

According to the Wall Street Journal, U.S. offices of HSBC accepted $4 billion in cash shipped by car and plane from Mexico in 2008.  Despite the high likelihood that the cash was coming from Mexican drug cartels, HSBC’s antimoney-laundering committee “rubber stamped” approvals to allow the suspicious transactions to continue.  Even more alarming, the Journal notes that:

Over a decade, HSBC opened more than 2,000 accounts for customers in the name of so-called bearer share corporations, which allows secrecy by assigning ownership to the person with physical possession of the shares, the report said. Often the actual owner of the accounts was unknown.

The accounts in HSBC’s Miami office alone were worth an estimated $2.6 billion, congressional investigators found. Multiple internal audits and regulatory examinations faulted the accounts as risky and urged the bank to either take custody of the shares or require corporations to register the shares in the names of the shareholders.

The report also raised alarms about HSBC’s business in the Middle East, and said its business relationships with three banks in particular raised “troubling questions” about the company’s vigilance against terrorist financing.

The financial crisis that brought the entire banking industry to the edge of collapse in 2008 and the ongoing series of financial scandals since then has resulted in a dangerous loss of public confidence in the financial system.   Recent polls indicate that almost 60% of the public have little confidence in the banking system and Bloomberg says General Public Losing Faith With Banks.  Does anyone wonder why?

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