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Ten banks fined £130bn: time to restructure a corrupt and rotten system

Banks at Canary WharfThe costs of gross misconduct by leading banks, including RBS and Lloyds, have been estimated by LSE research at £130bn in the 6 years to the end of 2013. That is significantly more than Britain’s total budget deficit (£111bn) and substantially more than the international aid budget supplied by the 24 richest countries (£80bn). More too than the NHS budget in a year (up to £110bn).

However, these fines can also be seen in a different light. Against the profit these 10 major banking institutions have made in the last 6 years, the fines make a significant dent, but they are not crippling. Indeed it has been argued that the manipulation of a global interest rate, to the banks’ own benefit, where several trillion dollars’ worth of assets are priced to it, deserves a much more punitive penalty, partly because of the enormity of the crime and partly as a warning to others that this should never be tried again.

There are several aspects of these fines which deserve closer investigation. One is that they have overwhelmingly been imposed by US and EU authorities, not by UK regulators who appear slow, ineffective and well behind the curve.

Another is the highly questionable practice of letting banks off enormous fines if they give information to the authorities, similar to the plea bargain in the US. It might be thought reasonable to reduce the penalty by a certain modest proportion, but certainly not to drop altogether the penalty otherwise payable. Yet that is what was done in the case of Barclays which was let off the £570m fine over the Euribor cartel as a result of blowing the whistle, as was the Swiss bank UBS which escaped a colossal £2.1bn fine by telling regulators about the yen Libor-rigging cartel.

A third matter for concern is that the regulators hadn’t discovered the gross misfeasance committed by the banks for themselves, and only discovered it when one of the banks, as it were, turned Queen’s evidence. Either the regulators were asleep at the wheel, or the complexities of inter-bank trading are so dense and opaque that the whole existing market system needs to be broken up to enforce transparency.

Yet another issue is that this corrupt manipulation of crucial global benchmarks was only possible as a result of extensive collusion between banks. Yet they are supposed to be competing with each other. These financial markets are neither competitive nor transparent nor honest, and ripe for major structural reform.

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