What's the catch? MPs discover investment banks charged only £1 to “help” Treasury re-privatise Lloyds and RBS

SOURCE GUARDIAN: What's the catch? MPs warn UKFI over banks' £1 privatisation fees

UK Financial Investments (UKFI) is the company established by the Treasury to hold the taxpayers’ stakes in RBS and Lloyds. It has been warned to remain “ultra-vigilant” after it was revealed some of the City’s biggest investment banks – including Goldman Sachs and UBS – are charging the government as little as a £1 fee for work that would normally cost tens of millions of pounds. Representatives of UKFI told the Treasury select committee it had paid just £15 for help and advice related to the sale of shares in Lloyds Banking Group and RBS which would normally have cost around £38m. Oliver Holbourn, head of market investments at UKFI, said some City firms had even offered to pay the government to work on its privatisations. The banks, however, eventually concluded that such arrangements could be an offence under the US foreign corrupt practices act. James Leigh-Pemberton, the boss of UKFI, said he assumed the banks worked for £1 because of the caché associated with such high-profile work. But Conservative MP, Chris Philp, warned UKFI to proceed with caution: “I’ve never encountered an outfit like Goldman Sachs or Morgan Stanley acting in a charitable manner,” he said. Steve Baker, another Conservative MP on the committee, said UKFI needed to give clear answers about where the investment banking advisers are making money, given the low fees. “I feel sure that many of my constituents would join me in regarding in the utmost astonishment that the same organisations that have been fined for repeat rapacious misconduct are now the jolly good chaps we imagine from the past and now charging just £1 for their services”.

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Our banks aren't lending to the real economy. Maybe Corbyn’s QE and National Investment Bank will

KJ get's there in the end, with help from Fee and Chris...

SOURCE TELEGRAPH: Five good things about Corbyn (even if you're not a Labour supporter)

Did you ever wonder why the banks and the City (who caused the great recession) were also the largest beneficiaries of re-inflating the economy with quantitative easing? And did you not perhaps feel a little aggrieved that, once they’d got what they wanted, they carried on as if nothing had happened, displayed no gratitude whatsoever and changed their ways not a bit? Anyway, history has shown that there is alternative in the form of a massive public works programme. You know, like the New Deal. A response to an economic calamity that benefits everyone, not just the people who caused it. Imagine if, instead of a few new towers in the City we had new jobs, new ports, new roads and new railways. Imagine, if instead of austerity, we had government spending. You wouldn’t even need to print money to do it. Rather, governments could borrow it - and at the lowest rates for decades. The Economist recently described the failure of governments to borrow to build as a “missed opportunity”, while Standard & Poor’s reckons that, for every 1% of GDP spent on infrastructure the UK’s economy would grow by 2.5 per cent.

SOURCE STANDARD & POOR'S: Global Infrastructure Investment: Timing Is Everything (And Now Is The Time)

Standard & Poor’s sees clear economic benefits to G20 countries’ increased public spending on infrastructure–with the so-called “multiplier effect” of an increase in spending of 1% of real GDP running as high as 2.5 in a three-year period. The multiplier effect is generally greater in developing economies than for more developed countries; for example, China, India, and Brazil would all enjoy a boost to GDP of at least double the increase in investment. For Europe, it’s clear that a concerted effort across the region would have a greater effect than country-specific increases in spending. For developed nations, the increase would boost employment substantially–adding more than 700,000 jobs in the U.S. and about a million in the EU. In addition to the short-term boost to jobs and aggregate demand, infrastructure investment often yields long-term benefits by enhancing efficiency.

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Graphs at a glance: Bank of England survey shows banks are not bothered about "public anger against, or distrust of, financial institutions"

If you crashed your mum's car, you would be on your best behaviour for a while until she forgave and forgot. You would do all the good things, washing up and stuff, to reduce her anger and mistrust. So she would lend you her car again when it gets back from the garage with the repair bill for your mum to pay. 

So why, having crashed the World Economy and handing the bill to the World's taxpayers, did the banks carry on regardless with scams like PPI, IRSA, Libor, Forex, aiding tax evasion and money laundering? 

Didn't they want to assuage their customers' anger and regain their trust?

Actually, data from the Bank of England shows they weren't bothered. 

In July 2015 the Bank of England (BofE) published its biannual "Systemic Risks Survey". This report, produced since 2008, looks into what bankers worry most about. 

The survey works by:
"quantifying and tracking, on a biannual basis, market participants’ perceptions of such risks. The survey covers aggregate risks to the UK financial system, including the probability of a future high-impact event and confidence in the stability of the UK financial system, as well as specific sources of risk which could either have a particularly large impact or be especially challenging to manage as a firm"

The data reveals since 2008 the Financial Services Industry has never been bothered about public anger and mistrust. 

The report identifies 21 specific causes for concern ranging from "Sovereign Risk" to "Cyber Attack". From its first publication "public anger against, or distrust of, financial institutions" ranked lowest or second lowest in twelve of the fourteen reports. Even when banker angst at what their customers thought of them peaked in the first half of 2010 there were only 6 items less important.

On the other hand, the third most scary thing for the finance industry according to the survey is "Risks around regulation/taxes". 


In his Mansion House Speech in June 2015 the Chancellor, George Osborne, dropped a heavy hint that the time for regulatory bashing bankers was coming to an end. Osborne said:"simply ratcheting up ever-larger fines that just penalise shareholders, erode capital reserves and diminish the lending potential of the economy is not, in the end, a long term answer."

This is certainly true. However Osborne goes on to say something that probably isn't true:
"individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are – and they will be."

Taking away the £billions of bonuses (the Office for National Statistics states £87 billion paid to UK Financial Services between 2007 and 2013) pocketed during the bank crash and the associated frauds of the last few years has proved impossible. Doubtless some of these bonuses were fairly earned by earnest bank tellers. And doubtless these bank tellers are used as human shields for the 'bad bankers' who won't have to return anything. 

The Prudential Regulation Authority (PRA, who took over part of the old FSA's job) said in July 2014 the long promised "banker bonus clawback" would come into force for bonuses awarded after January 2015. By June 2015 the PRA for some reason delayed this to January 2016. Giving the bankers an extra year to safely stash their ill-gained swag, and redefine future 'bonuses' as 'allowances' or something else not covered by the clawbacks. 

Christine Lagarde, the head of the IMF, said in May 2014:
"the behavior of the financial sector has not changed fundamentally in a number of dimensions since the crisis. While some changes in behavior are taking place, these are not deep or broad enough. The industry still prizes short-term profit over long-term prudence, today’s bonus over tomorrow’s relationship.

Some prominent firms have even been mired in scandals that violate the most basic ethical norms—LIBOR and foreign exchange rigging, money laundering, illegal foreclosure.

To restore trust, we need a shift toward greater integrity and accountability. We need a stronger and systematic ethical dimension."

Evidence presented to Parliament by IPSOS-Mori shows the depth of public mistrust and support for more regulation in the UK.




To restore trust the bankers need to see trust as something worth restoring, which they evidently don't. To strengthen regulation the government needs to decide who is more important to it, the financial sector or the general public.

Asked which risks would be most challenging to their firms, managing angry customers barely registered at all. Regulation, however, figured highly. 

The government is signalling that the frightened little bankers shouldn't worry for their wallets. Osborne will tuck them up and kiss their fears away. 

Which of course means the rest of should be afraid, very afraid.

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Chancellor Osborne to sell RBS shares at a loss. What's he up to?!

SOURCE CITY AM: Doubts cast on George Osborne over RBS sell-off as Andrew Tyrie questions £14.3bn profit claim

Tory MP Andrew Tyrie, the chairman of the Treasury select committee, cast doubt on chancellor George Osborne’s claims taxpayers stand to make a £14bn profit from the 2008 banking bailout. Osborne unveiled plans on Wednesday to start selling a 79 per cent stake in Royal Bank of Scotland (RBS) – but at a loss to taxpayers who bailed out the bank. Osborne explained, citing a report published by advisory firm Rothschild, that a £7.2bn loss on the sale would be cushioned by a gain made on the sale of other state-owned assets like Lloyds. Overall, Rothschild estimated a £14.3bn surplus for the Treasury from its interventions in the banking sector. But Tyrie said Osborne’s calculation “...would benefit from a great deal of qualification... It excludes the cost of funding the bailouts (£17bn)....And it treats fees paid in exchange for a service as if they were income, or recoveries.” Shares in RBS were at 361.5p yesterday. after the sell-off plans were unveiled. The government would need to sell shares at 407p to break even on its £45bn 2008 recapitalisation of the bank. The first sale of shares is set to come in the next 12 months but could be as soon as September.

SOURCE: Chancellor Osborne's speech at Mansion House, June 2015

“There is another step we take today towards a new settlement with financial services – and that is to get the government out of the business of owning great chunks of the banking system.”

“...if you take into account all the sales we’ve authorised of our bank assets, and the fees we’ve received – at the current valuations taxpayers can expect to make £14 billion more than they paid out. Let me be very clear about what I’m saying tonight: Our economic plan has been about fixing what went wrong in the British economy. So, in the coming months we will begin to sell our stake in RBS.”

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Privatisation of RBS, will the taxpayer get their money back let alone make a profit? Osborne says yes, National Audit Office says no!

On the 20th May 2015, just weeks after the General Election relieved the Tories of their Liberal Democrat conscience, George Osborne asked the bankers at Rothschild’s to tell him that he should re-privatise RBS (the Royal Bank of Scotland). 

Accordingly Rothschild’s produced a report titled “The UK investment in the Royal Bank of Scotland”. The report says the government should indeed re-privatise RBS. To cover their expensively pinstriped backsides Rothschild's started the report with a disclaimer which included statements such as:
"The Report has been prepared on the basis of publicly available information. This information has not been independently verified by Rothschild....no responsibility or liability is or will be accepted by Rothschild or by any of their officers, servants, agents or affiliates as to or in relation to the accuracy or completeness of the information forming the basis of this Report"

In short, Rothschild's stated: we took the information we were given; we didn't check whether it was correct; we didn't check whether it was complete; don't blame us if it is wrong.

The report managed to assert that we, the British taxpayers, not only get our money back but we make a £14.3 billion profit! The report concedes that we made a loss from RBS alone, estimated at £7.2 billion. But taking into account all the financial sector crash rescues together: RBS, Lloyds, UKAR (i.e. the remains of Northern Rock and Bradford & Bingley) and various other unspecified institutions the report claims an overall surplus of £14.3 billion. 

To see if this is true, we took a look at publicly available information from the National Audit Office (NAO).
 
1) "Cash and fees received"
Consider in the Rothschild's table above, Shaded in purple, the "Cash and fees received" and the "CGS fees" and "SLS fees":
The Rothschild's report states “We also take into account the fees received by the government under the Credit Guarantee Scheme and Special Liquidity Scheme (industry-wide funding and guarantee schemes) under which there is no remaining liability to the taxpayer and no payments were made.”

What's this about? The banks bought £1.029 trillion (equal to 80% of all publicly owned wealth put together: £1.34 trillion in 2013-14) of insurance cover from the government to protect them against further losses. This insurance came mainly in the form of the Credit Guarantee Scheme, the Special Liquidity Scheme, and the Asset Protection Scheme. 

The banks didn't claim on this insurance, so Rothschild's decided they would use the premium to put against the amount the banks owed the government. You try going to your insurer and see what they say if you ask for your premiums back because you didn't make a claim. And you want the money to pay off your overdraft.

 

Also included in this "cash received" is interest paid by the banks on £133 billion in loans the government gave them. (This £133 billion is not included in the "Amount Injected" figures in the table above).

[Text in purple and red below is taken from the National Audit Office].

Q: How much support did the Government provide to UK banks?

There were two types of support provided:

• Provision of guarantees and other non-cash support. The main items under this heading are the Credit Guarantee Scheme, Special Liquidity Scheme and Asset Protection Scheme, as well as various other guarantees and indemnities provided to UK banks.

• Provision of cash in the form of loans to the Financial Services Compensation Scheme and insolvent banks to support deposits, and the purchase of share capital in Royal Bank of Scotland and Lloyds Banking Group.

Peak Support

• Guarantee commitments [insurance]: £1.029 trillion
• Cash outlay [loans]: £133 billion
• Total Peak Support: £1.162 trillion

The National Audit Office states that this £17 billion in cash and fees received by the government is actually less than the cost to the government of providing the support. For Rothschild's to include this to show the taxpayer made an overall profit is nonsense. The sort of blinkered accounting that got the banks into the Credit Crisis in the first place. The NAO explicitly states the taxpayer made a loss:

• The fees and income received. As at 31 March 2014, the Treasury had received a total of around £17 billion in fees and interest for providing the support and assuming the risks covered by the guarantees since 2008. This is below the cumulative finance cost.

2) "Outstanding Payments"
Shaded in green in the Rothschild's table above, "Outstanding Payment" refers to £20.3 billion still owed by the banks to the government. For example RBS owed £1.2 billion to buy back the government's right to the lion's share of dividends, their "Dividend Access Share". Something RBS is keen to do so it can restart paying dividends, which haven't been paid since its rescue by the government.

Rothschild's assumes this £20.3 billion will all be payed back. Taken literally one can't argue with this. If the banks decide they don't have the money, then the taxpayers will bail them out. The taxpayer picking up these banks' debts to the taxpayer would actually be relatively small beer in the grand scale of things the taxpayer has been picking up for the financial sector.

3) Loss due to government's cost of borrowing
Something Rothschild's have completely omitted is the government had to borrow the money used to bail out the banks. 

Odd that bankers never forget about the interest when we borrow from them, but it completely slips their minds when they borrow from us.

The National Audit Office states the government paid a bit under 3% interest on the money it borrowed to bail out the financial services industry:

"Costs arising from the additional government borrowing raised to finance the purchase of the shares and loans.. The money needed to make the interventions was provided by longer-term funding in the form of Gilts (interest-bearing government bonds purchased by investors for periods of up to 50 years), at a cost of just under 3% a year."

During past sales of Lloyds Bank shares George Osborne claimed to be making a profit by comparing the sale price with the original bailout purchase price. He pulls this off by ignoring the 3% interest cost to the government. The reality is all these Lloyds share sales were made at a considerable loss:

Taking this 3% interest into account, we can see the real loss the British taxpayer has made in what Rothschild's describes as its "investment in the Royal Bank of Scotland":

4) The Opportunity Cost:
The Opportunity Cost represents what may have been gained if the government used the money given to bailout the banks on something else. 

The National Audit Office stated,
"The income generated by fees and interest is less than would be expected from a normal market investment and has not compensated the taxpayer for the degree of risk accepted by taxpayers in providing the support. Once the opportunity cost and risks are factored in, the schemes have represented a transfer from taxpayers to the financial sector."

For example, what if the government had built houses in Greater London to relieve the "housing crisis"? Using the Halifax House Price Index for Greater London, we can see how much more was lost for not doing the things we could have done:

It is ironic that the chancellor asked the bankers at N.M.Rothschild's to advise him. About 200 years ago an earlier head of the bank, a chap called N.M.Rothschild, said "Buy when there is blood in the streets". His meaning was to buy cheap when everyone else is panicking, so you can sell at a healthy profit later when everyone has calmed down. Instead, Osborne has decided to sell RBS at a loss. 

It is clear from the National Audit Office that the UK Taxpayer has made a large loss on the bailouts overall. 

But let's consider RBS alone. To estimate how big a loss the taxpayer investment in RBS actually is, as at 5th June 2015 (the date for which figures in the Rothschild's report are done):

[Figures in Rothschild's report are in blue; figures that didn't make it into the report are in purple; figures included in the report that shouldn't be, the bogus "cash and fees", are in green]

• Amount injected between Dec2008 and Dec2009: £45.8 billion
• Government paid interest on this £45.8 billion at 3% for 6 years: £8.2 billion in interest
• "Cash and fees" from Rothschild's report £4.5 billion not included in the 'surplus'
• Value of RBS shares stated in Rothschild's report: £32.4 billion 
• Loss stated in Rothschild's report: £7.2 billion
• Actual loss = £7.2b + £4.5b + £8.2b = £19.9 billion

It was perhaps inevitable that the big winners from the banking crash would be the banking sector. RBS, we are told, will thrive under private ownership because it will be able to do things it can't do under public ownership. 

We shudder to think what those things are, having already experienced Payment Protection Insurance, Interest Rate Swap Agreements, and various other scams pulled off by privately held banks in recent years.

And so here we are again. The taxpayers, having rescued and sheltered the collapsed banks, now release them back into the wild private sector, where we can continue to be their victims in the various shenanigans that are known collectively as "banking". 

Sadly there is nothing much we can do about that. But one thing we can do: when they tell you we British taxpayers made a profit from the banking bailouts take advice not from Rothschild's report but from Tom the cartoon cat: "Don't you believe it!"

 

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"Lest We Forget" Banker Special: a review of continuing banker scandals the major parties have gone quiet about

As we all know, the country went into a tailspin following the collapse of the banks, both here and abroad. You can say what you like about the Tory LibDem government's attempts to turn the country around, and the opposition's criticism of it. But one thing is for sure. Whoever is paying for the crisis, it's clearly not our top bankers.

In the first week of March the total pay of the CEOs of our largest banks was revealed. The boss of Lloyds, Antonio Horta-Osorio, got £11.5m, Stuart Gulliver at HSBC got £7.6m, and Barclays’ Antony Jenkins got £5.5m. RBS boss Ross McEwan modestly took £1.85m after voluntarily turning down a £1m bonus, because he “does not want this issue to be a distraction from the task of building a great bank for customers and shareholders.” Surely because he does not want everyone to ask the obvious question: given RBS lost another £3.5bn last year, the seventh year in a row of losses that brings the total to £43bn since the 2008 bailout, how come you were offered a £1m bonus to turn down in the first place?! And how come, overall, RBS handed out £421m in bonuses to its “top” bankers last year?

So, now would be a good time to give a round-up of continuing financial services shenanigans, all taken from the mainstream media both left and right, since January 2014.

It includes...

• Bank scams, from sneaky mis-selling to outright fraud, from mammoth large to small-ish.
• The huge fines US regulators have imposed, in contrast with the measly fines we do.
• Revolving doors: some of the former bank regulators who got hired to advise the banks.
• Promises, predictions and failures to rein in the banks.
• The continuing rise of consumer and mortgage debt, which got us into all this trouble in the first place.

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Graphs at a Glance: Has inequality reduced since the Conservative-LibDem government of 2010? Yes, and No.

In a bakery not far away there was a baker, who treated his customers extremely unequally. To some he gave plain buns, others spiced buns with candied fruit, and to others iced buns. He said the bankers worked harder than the nurses, and so deserved the icing. And the accountants were cleverer than the teachers but didn't work as hard as the bankers, so they deserved the candied fruit buns. Iced buns are much better than plain buns, inequality was very great.

One day the icing machine crashed, due to a leak in the water pipes leading it to flood. With no icing there were no iced buns. The bankers could only get the spiced variety. Now spiced buns are better than plain buns, but less so than iced buns. Inadvertently, inequality was reduced! At least until the icing machine got bailed out.

The Tories are claiming that inequality has reduced since 2010. They are correct. Since the banker induced crash that started in 2007/08 the incomes of the top 20%, as shown by this graph from the ONS, fell more sharply than everyone else. 

As the rewards of the boom years weren't shared with those on low income, like the icing on the buns, they didn't see so much downside on income when the economic machine broke. Thus the Tories can say 'inequality' has fallen.

The standard measure of inequality is the GINI Coefficient, which looks at income but not at wealth. So the Tories are correct: income inequality, GINI, did fall marginally in the years immediately after 2010.

On the other hand, since the banking crash and the policy of QE (Quantitive Easing) asset prices have grown strongly. The BBC provide a 1 minute explanation of what QE is:

 

Those left wing firebrands at the Financial Times provide another useful primer on the effect of QE:

The speaker, Professor John Kay of the London School of Economics, states among other things that the policy of Quantitative Easing is like:

• “pouring water into a leaking pipe in the hope that some might dribble through"
• “those who have assets [including home owners & shareholders] benefit in relation to those who don't"

According to a report by Credit Suisse, in 2013-14 household wealth has done extremely well, with a close to 20% increase:

A 20% increase in assets helps those with most assets the most, and those with no assets not at all. In relation to its £325 billion of QE, the Bank of England's report states:

"the total increase in household wealth stemming from the Bank’s £325 billion of asset purchases up to May 2012 of just over £600 billion... In practice, the benefits from these wealth effects will accrue to those households holding most financial assets."

The Office for National Statistics "Total Wealth In Great Britain, 2010-2012" report shows how all wealth (Financial; Property; Physical; Pension) is distributed. You will notice that the bottom 50% have virtually no Financial Assets:

A report by Ed Conway of SkyNews, estimates how much each decile (the '10th' in the graph below is the wealthiest 10% etc) benefited from QE by 2012:

A billionaire hedge-fund manager in the USA, Stanley Druckenmiller, commented about the US policy of Quantitive Easing:

"This is the biggest redistribution of wealth from the middle class and the poor to the rich ever."

So, in answer to the question "has inequality reduced since the Conservative-LibDem government of 2010", the answer is:

Income: Yes, a little bit.  

Wealth: Hell no!

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Is it time to stop bashing bankers? Continuing revelations of "cringeworthy behaviour" suggest not.

Is it time to stop bashing bankers? Have the crooks already been biffed out of the ring? Are we just hindering the new saintly bankers? As they clean up after the few bad apples who spoiled it for everyone else?
Of course not. And in saying this we are in good company:

Even the Governor of the Bank of England no longer believes in the "few bad apples" theory of rotten bankers. In November 2014 the Governor, Mark Carney, said:

"The succession of [banking] scandals means it is simply untenable now to argue that the problem is one of a few bad apples. The issue is with the barrels in which they are stored."

The Bank of England tweeted Carney's sentiments to its 120,000 or so Twitter followers to make sure as many as possible heard. Here it is, so you can retweet it too:

#FinancialStabilityBoard’s Carney says untenable to argue that problem is a few bad apples. It is the barrels in which they are stored
— Bank of England (@bankofengland) November 17, 2014

The Treasury minister responsible for the City of London said in July 2014:

"I think there's quite a long way to go to really change the culture.... I think we are still going to see a lot of cringeworthy announcements."

A report on "The Culture of British Retail Banking" in November 2014 by the Cass Business School and the think tank New City Agenda (founded by cross-party luminaries) stated banking suffers from:

"A toxic culture decades in the making [that] will take a generation to clean up."

This same report refers to an ethics study done in June 2013, several years after the banking crash, showing the big retails banks still swimming in a red sea of bad ethics.

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Graphs at a glance: Who's afraid of the big bad bankers? Apparently, the regulator.

According to the Guardian newspaper between 2009 and 2013 banks paid £166 billion in fines and compensation for sins ranging from LIBOR fixing, to PPI mis-selling, to money laundering, to gold price fixing, et cetera. This figure doesn't include fines from 2014 onward including FOREX fixing et cetera.

According to the Office for National Statistics £136 billion was paid in bonuses to UK staff in the financial services sector between 2004 and 2013, when much of the dodgy dealing was being done.

Fines are paid by shareholders (for Lloyds and RBS that includes us taxpayers), but bonuses are paid to individual staff. Does the UK regulator require individual naughty bankers to hand back some of the bonuses they gained doing things that earned £166 billion in fines? We hope the next graph will make this clear:

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“Politically motivated” Treasury posts 24m letters, telling you what your Income Tax and NI is being spent on

Fee, KJ and Chris somehow find it in their hearts to forgive Osborne...

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Lloyds fined £218m for rigging Libor and the taxpayer-backed bailout scheme that saved them

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Graphs at a glance: Interest rates rising? Whether they go up or down, we are the losers.

The Governor of the Bank of England has said the official Bank Rate, commonly known as the Base Rate of interest, is going to go up sooner than we think. 

The Bank of England website explains what this official rate is for:

“The Bank of England sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers.”

 
In 2009, in order to assist recovery from the banking crash, this official interest rate was brought down to 0.5%. The idea being banks would be able to borrow money cheaply, and lend it out to businesses and individuals cheaply. 

Bank of England Data

Cheap loans: to encourage investment and spending, to strengthen the economy. As it happened, the banks didn't lend as intended, contributing in part to the UK economy taking a record 6 years to get back to its pre-crisis peak.

So should we be afraid of the Bank of England raising its official rate? None of us actually have mortgages with the Bank of England, so why should we care? The high street banks don’t actually HAVE to change interest rates they charge us just because the Bank of England changes its official rate.

The question is “will they or won’t they” follow the Bank of England? Recent history, shown in Bank of England statistics, show that the banks both will and won’t.

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Graphs at a glance: Financial Reporting Council (FRC) says just 2% of bank and building society audits were up to scratch.

In April 2011 the US Senate held a hearing on "The Role of the Accounting Profession in Preventing Another Financial Crisis". Kicking off the hearing the chairman of the Senate committee, Senator Jack Reed, commented:

"Prior to the collapse or rescue of nine major financial institutions in 2007 and 2008, they each received unqualified audit reports within months of their demise from various major accounting firms. So this hearing is not about one company or one auditor. This is about systemic weaknesses in the audit process that may continue to impair investor confidence and provide inadequate information to the investing public and to directors of public companies and to the markets in general.

The costs of these problems are staggering. The Financial Crisis Inquiry Commission estimated that nearly $11 trillion in household wealth was lost through retirement accounts and life savings being diminished in the crisis. Auditors who have the responsibility for examining and reporting on the companies' books and records in the cases I have cited sounded no distinctive and helpful alarms prior to the demise of these companies.

As such, serious questions have been raised about the quality of financial reporting practices and about the quality of audits that should have revealed key financial irregularities or the poor status of these companies."

In May 2014 The UK's Financial Reporting Council (FRC), "the UK’s independent regulator responsible for promoting high quality corporate governance and reporting", produced a report stating only 2% of Bank and Insurance Company audits were "good".

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