Page 140 - Articles Written by JGJ EF DPS

Banking Tutorial Case Set

It began in 2007 with a crisis in the subprime mortgage market in the
US, and developed into a full-blown international banking crisis with the
collapse of the investment bank Lehman Brothers on September 15,
2008. The 2008 financial crisis was the worst economic disaster
since the Great Depression of 1929. Excessive risk-taking by banks
helped to magnify the financial impact globally. Blame for the crisis was
squarely laid at the feet of the financial institutions, in particular the
banks, as a consequence of their risk-taking culture. Nevertheless, the
banks received massive bail-outs to prevent a melt-down of the world
financial system.

How the banks and financial institutions reacted can, to some extent, be
measured in terms of their ‘conduct costs’ i.e. the level of fines, any sum
that has become payable as a result of, or in connection with, any
breach of any code of conduct or any sum paid in connection with any
litigation and so on which reflect the bank’s culture.

The world's top 20 banks, according to the Conduct Cost Project's (CCP)
Research Foundation, paid conduct charges totaling £264 billion
between 2012 and 2016, an increase of nearly a third compared to the
2008-2012 period (1).

“we find ourselves wondering when, if ever, the level of conduct costs
will start to decrease. The new table tells us this has not happened yet,
at least when the five-year period ending 2016 is compared with the
preceding five-year period.

There has, in fact, been a 5.2% increase.” Roger McCormick (1).

“Findings from the latest 5-year period (2012-2016), including provisions
at the end of the period, reveal a total amount of cGBP 264Bn. This
represents an increase of c32.0% when compared with the 1st research
period (2008-2012). These results highlight that, even 10 years after the
start of the global financial crisis, the financial consequences of
misconduct remain evident and material.”

This raises doubts about efforts by the major financial services senior
management, who after all set the culture of their banks, to restore trust
in the sector. Particularly, as it points to sales driven cultures where
scandal after scandal has been revealed with the continuing refusal of
the banks to hold anyone in a senior position to account.