Regulator quietly shelves inquiry into banking culture. Another victory for the bank lobby

Chris has it all explained by a banker...

SOURCE BBC NEWS: Banking culture inquiry shelved by regulator FCA

The FCA had planned to look at whether pay, promotion or other incentives had contributed to scandals involving banks in the UK and abroad. The Treasury denies involvement in the decision - which some commentators have suggested was politically motivated. Banks around the world have faced huge fines from regulators for their involvement in numerous scandals. In May the news agency Reuters calculated that 20 global banks had paid £152bn in fines and compensation to customers since the 2008 financial crisis. The decision to drop the inquiry comes six months after FCA boss Martin Wheatley - who was originally hired because of his reputation as a tough regulator - was effectively sacked by Mr Osborne following two tumultuous years in the role. Many in the City had found Mr Wheatley's approach too combative and raised concerns about some of the language he used in reference to the banking industry. Percival Stanion, head of multi-asset strategies at Pictet Asset Management, also suggested that it was "no coincidence" that the investigation was being dropped at a time when HSBC was reviewing whether to keep its headquarters in London. HSBC has been a vocal critic of the bank levy, which Mr Osborne reduced in his summer budget following the general election. This will be seen by many as further evidence that regulators and the government have decided to take a softer line with the banks and bring the "banker bashing" era to a close.

OUR RELATED STORIES:

The FCA fails again. We don't need a review of banking culture, we need a review of regulatory culture

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

Is it time to stop bashing bankers? Not when you look at what they’ve got caught doing since the 2007/08 bank bust

In the UK, £136bn in bonuses to bankers between 2004 and 2013. Globally, £166bn in fines for rigging, laundering, etc. But no bonus clawbacks

Who needs fat cat pay? The Germans don't. See the comparison with the UK

The incomes of the bottom 90% have hardly risen in 20 years, whilst the top 1%’s has doubled

Riposte: What does banking contribute to UK Plc? 7 myths exposed, and why we must rein them in

As of 2014, the £20bn paid out by the banks for their PPI mis-selling is more than all their taxes paid since 2008

The bailout of our banks continues. Not from the taxpayer, but from your pathetic savings interest rates. See the BofE data

Financial Reporting Council says just 2% of bank and building society audits are up to scratch

The Interest Rate Swaps that screwed 40,000 small and medium sized businesses: how the regulator allowed the banks to be judge and jury for their own dodgy deals

RBS accused of seizing small business assets and selling them at knock-down prices to an RBS subsidiary

The government wants you to think we made a profit on sale of Lloyds Bank shares. Actually we made a thumping loss!

How re-mortgaging covered up the theft of Britain's growing wealth in the boom, and helped cause the bust

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Bank scam fines to pass £60bn. That's not including the cost of global collapse, of course!

SOURCE DAILY MAIL: Britain's biggest banks face further £19bn of fines and charges to pay for financial scandals

The UK’s ‘big four’ banks – HSBC, Barclays, Lloyds Banking Group and Royal Bank of Scotland – have already racked up a £42billion bill in the UK over the last five years. This represents 88 per cent of the industry wide total of £48billion in charges faced by 13 banks and building societies in Britain. S&P said it now expects the UK’s four biggest lenders to face further penalties in 2015 and 2016 of £19billion – taking the total for the big four to £61billion. The bill has been driven by the mis-selling of payment protection insurance (PPI) as well as interest rate hedging products to small and medium-sized businesses. ‘We think that conduct and litigation charges are now a way of life for the UK banking industry,’ said S&P in the report.

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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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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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Graphs at a glance: How do banks pay their taxes? UK banks Payment Protection Insurance (PPI) compensation fund reaches £20billion. A swindle big enough to pay all their Corporation Tax for years.

[UPDATE DECEMBER 2016: The total compensation paid by the banks reached £40bn as of October 2016, and will no doubt rise further. That means the banks swindled as much out of customers through PPI alone as they paid in corporation taxes between 2005 and 2013. It's as if they got us suckers to pay their taxes for them.]


We are told by by bank lobbyist from the industry and from politics that banks must be kept free of effective regulation because they provide vital tax revenue to the country. Standing in the economic ruins immediately after the 2008 crash, Boris Johnson said of financial regulation, with as straight a face as he can manage:


“Sensible taxes, light regulation and reasonable employment law will mean businesses are able to pay the taxes for the things we need to do.”

So how do the banks get the money to pay these taxes?

In February 2014 Lloyds Bank increased its PPI mis-selling compensation fund by £1.8 billion. This took Lloyds' total for this scam to £10 billion, and the UK banking industry's total to about £20 billion as at February 2014. This total may well continue to rise over time.

Figures from HMRC show that this £20 billion, swindled out of their customers, is the same amount as the total taxes paid by the banks since 2008 in Corporation Tax, Bank Levy, and Bank Payroll Tax. Note that this £20billion of ill-gotten gains doesn't include other swindles such as Interest Rate Swaps, LIBOR rigging and others.

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Graphs at a glance: Cambridge University study shows fewer than 1 in 10 members of the public trust or regard as ethical banks and energy companies

The relationship between British Industry and British Government is the same as that between a dominatrix and her clients. Plenty of shouting and threatening, but no visible marks. 

Ministers appear in the news shooting out their lips, shaking their heads, scolding, threatening terrible consequences and spankings, but making no visible changes.

If you want to see a pair of reddened cheeks you need go no further than certain parliamentary committee rooms:

"I think you do evil" intoned Margaret Hodge, Chair of the Public Accounts Committee, who was being strict to the boss of Google, accused of tax dodging.

“I apologise to the Secretary of State and I should apologise to this committee and the taxpayer on behalf of our company. We didn’t have the systems in place that we needed” grovelled the boss of G4S having been caught out overcharging for offender tagging services. 

Margaret Hodge is matched by Andrew Tyrie, the man of the gimlet gaze who chairs the Treasury Committee. Peers of the Realm have been called liars by other peers of the Realm. Lord Lawson, sitting on the committee, chastised Lord Stephenson, former chairman of the wrecked bank HBOS, with the words "Either when you said that you were being dishonest, or else, if you believed it to be correct, you were delusional. I prefer to believe that you were not dishonest, and you were simply delusional."

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Don't let's be beastly to the bankers!

We are grateful to @KimBallard3 for suggesting this wonderful ditty by Richard Parry (inspired by Noel Coward (not by his banking skills)) entreating us all to be nice to bankers, ably accompanied on the piano by Pete Rosser. 

After all, even bankers have feelings. They may even have mothers who may even love them. Who knows?

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Interest Rate Swaps: how the FCA allowed accused banks to be judge and jury for their own dodgy deals

[UPDATE NOV 2016: Royal Bank of Scotland at last agreed to set aside £400m to compensate up to 12,000 small business customers that it “allegedly mistreated” in the wake of the financial crisis. Leaked RBS documents confirm that their "Project Dash for Cash" incentivised staff to search for companies that could be restructured and have their assets sold off, or have their interest rates bumped up. The documents also show that where business customers had not defaulted on their loans, bank staff could find a way to "provoke a default". In 2014 RBS said the department responsible, the Global Restructuring Group, was not there to make a profit. Weeks later, as the scandal was exposed, the then RBS chairman Sir Philip Hampton was forced to admit that it was.]



The banks' Interest Rate Swaps scam ruined businesses across the UK. Having explained how 'interest rate swaps' work and why they were sold in previous posts, we asked the undercover banker Honestly Banking to tell how the banks have managed to get themselves made judge and jury in the processing of compensation claims.

Fantastic, amazing, a triumph! That's really the only way you can describe the FCA review of Interest Rate Swap mis-selling. The wonderful thing about it is that the banks that did the mis-selling have got to design, run and review the scheme. Yes that's right, the very banks that did the mis-selling are conducting their own 'independent' review. What's even better is that the 'independent' oversight is by litigation lawyers who are in the pay of the banks[1] and will use the review process to gather evidence that can be used in litigation against the very people the banks originally mis-sold to.

Admit it, you've got to admire us clever bankers. We've even persuaded the FCA to state publicly that those businesses who have been devastated by the mis-selling of swaps don't need to take any legal advice![2]

“The IRHP review has been set up to deliver fair and reasonable redress to customers where appropriate without them needing to hire lawyers or claims management companies” 

FCA advice

The mis-sale of the Swap went so well first time, why not remove legal representation from the clients as well? What’s better is the banks got a top-secret agreement with the FCA[3], so there’s no oversight of the cosy arrangement we’ve got!

Banks decide who is eligible for redress:

Let's look at how this shrewd scheme works. Firstly the bank decides whether you’re eligible or not to use the scheme. Sneakily the banks use different criteria than normal to exclude those that might cost us a lot of money and the FCA accepted it[4] - result! We decide that you’re 'sophisticated' so you're stuffed – get out and take your swap with you (and don’t dare cancel that direct debit!). Good that gets rid of some of the problem. What's even funnier is we've got the FCA to state that these clients can use the FOS (ombudsman) for redress – but actually if they have more than 10 employees (which is probably why they were deemed ‘sophisticated’ in the first place) they are not eligible to use this either[5] - a stroke of genius!

“Independent” case reviews:

Then we get our 'independent reviewers', giant law firms, to deploy their experienced litigators to cross-examine the clients[6], sorry, not supposed to do that, 'interview' for several hours. We don't give them any of the bank's side of the story, but we get them to spill the beans and get them to admit that they really wanted the Swap and to incriminate themselves so that we can use the recordings in litigation if needs be. Our clever PR people have decided to call this an 'open transparent' process and not to bother to explain the legal ramifications to the mis-sold customers, who have been told not to bother with lawyers after we suggested it to the FCA[7].

“Independent” assessors:

Once the reviewers have got what the evidence need, we then use our army of 'independent' assessors to review the cases and decide if and what redress is due. We've hired in these ex-bankers, many of whom have been made redundant on day rates of £1000+ a day[8], so they had better reach the right conclusion or we will kick them out. Cleverly our HR people have made these assessors set up Ltd companies, so we can limit our liabilities if they are found to have been unprofessional or incompetent.

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Channel4 News reports RBS accused of seizing small business assets and selling them at knock-down prices to an RBS subsidiary

Channel4 News report:

"Small businesses have told Channel 4 News that when their property assets were seized by RBS they were sold off at auction to another arm of the business called West Register.

The bank has sold properties belonging to debtors at below-market value after suddenly withdrawing credit.

Property developer Chris Kashourides had a building in north London sold off for just £415,000 when the bank unexpectedly gave him seven days to pay off his overdraft in 2010.

Four months later the property was resold on the open market for more than £1 million. Mr Kashourides was forced to sell 25 more of his properties at reduced prices thanks to pressure from the lender."

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Both socialists and neo-liberals should ally to stop the "Big Six" energy firms' rip-off

Fee and Chris explain it all to KJ...

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Graphs at a glance: Legal usury in the high street. How high street banks push people into the hands of payday lenders.

This graph produced by Bristol University's study on high cost lending shows the cost of borrowing £100 for one month in the form of:

a) a loan from a group of Payday lenders
b) an unauthorised overdraft from a group of high street banks
c) an authorised overdraft from a group of high street banks

Bristol University coyly declines to name the payday lenders and high street banks.

Cost of borrowing £100 for one month

However the report does provide a helpful link to Which?, showing the data from 2011, which does name them:

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Isolated Britain fails to avert EU bank bonus cap

Fee, Chris and KJ wonder how long the UK can hold out...

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Comedy Animation: what good do bankers do?

Banks have been caught laundering money, and rigging Libor and energy markets. These are the acts of criminals, not just a matter of "mis-selling" to us consumers. So will our leaders now decide it's time to regulate them properly? So far they've been fined a fraction of the money they've made. Nobody important has been jailed.

Banks tell us: we pay lots in taxes; we create jobs; we'll leave for Hong Kong if you regulate us; blah blah blah.

You can read our point-by-point demolition of these false arguments in our earlier post: What does banking contribute to UK Plc? 7 myths exposed, and why we must rein them in

...or you can sit back and watch our 3-minute fact-based comedy animation...

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Don’t be ripped off by a Parliamentary Inquiry into bankers. Only a full Judicial Inquiry will do

By Ann Pettifor 

Fellow of the New Economics Foundation.

[Click here to sign the e-Petition.]

Power corrupts, and financial market power has corrupted financial and other markets. It has done worse. It has corrupted politics. That is why Britain will be ripped off by a Parliamentary Inquiry into banking. It will go nowhere, lack both credibility and teeth, and will inevitably be discredited. Above all, it is most unlikely to rein in bankers.

That is why we launched our  e-Petition the very day the Barclays LIBOR scandal broke on 27^th June, and why we are still calling on Britons (and all UK residents) to sign this Peoples’ Petition here for a full Judicial Inquiry into...  

“the fraud, wrongdoing and ethics of British banks, their management and their staff, and the role of the British Bankers Association. The terms of reference of this inquiry should also include the manipulation of interest rates on about £225 trillion of assets. The inquiry must have full powers to compel witnesses to appear on oath, and to obtain all forms of evidence.”

Within a few days, over 10,000 had already signed the petition, and very soon others – including Ed Miliband and the Labour Party – joined in the call. 

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Corporate culture - are we culturally a nation of looters?

The summer of 2011 saw the London riots in full view of local, national, and closed circuit television. Heedless of their audience ordinary Britons smashed and grabbed. Over the ensuing months thousands of convictions and punishments were handed out to citizens who had never faced a magistrate before and will probably never do so again. It takes an extreme hooligan to kick in a shop window. But once the window has been kicked in, it seems there are thousands of us who would step through and snatch stuff.

Corporate Britain saw the windows kicked in back in the 1980s when financial services were de-regulated. We quickly saw what well bred city gents turn into when nanny isn’t around. Bankers and traders leading the scramble for loot were followed over the years by the other professions. Some dashed through immediately while others waited a decade or so to see if anything would be done to stop the looting. Eventually, finding that lawmakers, regulators and public opinion were indolent and impotent, they too stepped over the line. Financial Services were joined in the looting by Energy, Insurance, Transport, Telecommunications and others. It wasn’t just the direct looting of us ripped-off Britons individually. The looters stepped into public services. Defence procurement, IT projects, the outsourcing to the private sector of policing, health, education and infrastructure build. The looting continued through decades of Conservative and Labour governments. Successive politicians, many of whom grew mightily wealthy, have a simple question to answer:

Please Tick:     Were you a Fool or a Knave?

            _            Fool

            _            Knave

            _            Fool and Knave

The ‘Big Bang’of 1986 was the sound of kicked glass shattering, and the echoes continue to reverberate today.

Like rioters in a court, the summer months of 2012 exposed a great deal about corporate culture.

• Barclays became the first of many big banks to have its Libor tricks declared by the Governor of the Bank of England and the Chairman of the US Federal Reserve to be fraudulent, exposed and punished.
• British banks, censured by the FSA, faced paying billions in restitution for scamming businesses into Interest Rate Swaps.
• HSBC was forced to apologise to the US government for laundering drug money, putting profit before probity.
• GlaxoSmithKline was fined US$3billion for selling dodgy drugs and bribing doctors to prescribe them.
• Traders were caught out rigging the market for oil and petrol.
• G4S left the Olympics inadequately guarded because they were more focussed on counting their profits than accounting for their guards.

Dies mirabilis, the British Bankers Association, arch apologist and denier, cancelled its 2012 summer party having recognised that “our industry needs to think long and hard about its collective behaviour”. Deprived of their Pimms and champagne the bankers skulked off to collect their thoughts over stronger stuff in their boardrooms.

Much was exposed, but was anything learned? The following exchange between the MP Jesse Norman and Bob Diamond, when Diamond was giving evidence to the Treasury Committee, suggests not:

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Can the CERN physicists help the bankers one more time?!

Chris and a banker chum discuss a new experiment for the Higgs Boson detector...

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Riposte: What does banking contribute to UK Plc? 7 myths exposed, and why we must rein them in

Riposte: an occasional series that responds to the comments posted by those who don’t like what we’re saying.

Riposte arms readers with the facts and the references. Never again find yourself stumped because someone’s one or two facts trump your better instincts.

Inevitably, some of the questions overlap. We apologise for any repetition in the answers.

Here are the comments...

• “Banks pay £55bn in taxes. We’ll lose that if the banks leave the UK!”
• “Regulation will shrink the banking sector, losing jobs and tax revenue. What will replace it?”
•  “A lot of other sectors depend on banking: legal services, consulting, and all those shops and restaurants in the city. They will suffer too.”
• “The UK earns £40bn in foreign exchange from overseas. If banks leave, we’ll lose that. The costs of squeezing the banks outweigh the benefits.”
• “Regulation won’t work. The banks will always find ways around it.”
• “The banks were de-regulated in the 1980s, but there were big banking crises before then when regulation was stiffer. So regulation won’t stop banking crises.”
• “Stiffer regulation means we lose our place as the global leader in banking.”

Here are the answers...

Q. Banks pay £55bn in taxes. We’ll lose that if the banks leave the UK!

We’ll only lose £3bn.

That £55bn figure for 2009-2010 includes corporation tax (£6bn), payroll taxes (£25bn), other business taxes like VAT and rates (£11bn), other taxes like stamp duty and interest rate tax (£13bn). In April 2011 the Independent Commission on Banking predicted just £3bn in taxes will be lost if banks relocate. Most UK banking activity makes its money from the UK domestic market, so only some banking activities can actually leave, which means most of the money the UK gets in taxes will remain here.

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Bank bonuses explained, thanks to LIBOR fixing

Bob Diamond's Barclays and the other big banks were rigging LIBOR interest rates? Jail the CEOs!

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As the CEOs of two major banks, Barclays and RBS, give up their bonuses we have an insight into what 'going the extra mile' is about

The banking scandals of June 2012 were shocking. In spite of a consistent record of financial services rip-offs (PPI; excessive overdraft charges; excessive investment charges; pension annuity rip-offs;…) two FSA judgements confirmed how low banks were prepared to go to turn a profit remain shocking.

• Barclays admitted lying to the market by rigging LIBOR. Barclays, whose early admission (*see note at bottom of this post) got them a 30% discount on their FSA fine, will be joined in disgrace by other banks in due course.
• Barclays, Lloyds, HSBC and RBS were exposed ripping off businesses with interest rate swaps

Equally stunning, certainly to its customers and its customers own customers and business partners, was the crippling of the Royal Bank of Scotland’s banking business for over a week caused by the failure to invest in its IT.

However, hidden among all the shocks was a huge revelation which risks going unnoticed. A revelation far more important than the rip-offs themselves. 

It is a revelation that shines a light on why these people who run the banks have their consistent record of rip-offs in the first place. It starts to explain why intelligent people with families, many of them with children and pets that love them, are prepared to rip off and consign to financial distress and ruin their fellow humans. And it’s not just for the money!

As penance for these mishaps Bob Diamond (CEO of Barclays) and Stephen Hester (CEO of RBS) have said they would not take bonuses this year. They rejected calls for their resignations and proposed no further sanction for their failures. [update 3rd July 2012: Diamond has resigned, stating as his reason: "The external pressure placed on Barclays has reached a level that risks damaging the franchise – I cannot let that happen". External pressure, not pressure from the board, nor the pressure of his own conscience?]  And herein lies the great revelation.

In all the storm and stress of what in any other industry would be desk-clearing defenestrating events there is an eye-opening insight here into the thinking of bank bosses. With Diamond and Hester’s response to their, or should that be our, misfortunes we get an insight into what bank bosses see their basic jobs to be, and what earns them their bonuses. 

“Bonus” is a reward for excellence. For doing more than your job requires. Evidently Diamond believes that it was beyond his normal duties to prevent his bank indulging in activities described by the FSA as:

“Barclays’ misconduct was serious, widespread and extended over a number of years….[its] behaviour threatened the integrity of the rates with the risk of serious harm to other market participants.”

Barclays not lying, Diamond presumably believes, is him ‘going that extra mile’ deserving of a bonus. Lying is therefore presumably just basic business as usual, deserving of his basic pay and perquisites. 

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