Banking is set up for scandal – don’t blame the individuals | Nesrine Malik

Bankers are human as the rest of us, which is why we need to rethink the size, structure and unwieldiness of the banking system itself

Imagine that you were wired $1.5m by mistake. What would you do? Well, that’s hardly a serious question you say. Return it post haste of course. But would you really? If you had debts, a passport, a home elsewhere, and could easily skip town? After all, it’s not as if you’d actually stolen the money.

Earlier this year, according to a lawsuit it has filed, Credit Suisse accidentally sent $1.5m to a hedge fund trader in New York, and was expecting the money to be returned once the man in question was notified. It never was. The trader appears to have moved abroad (and challenges the bank’s version of events). In a separate development, Barclays has had to set aside £500m to cover the cost of fines that will likely result from an investigation into the alleged rigging of currency markets. Its currency traders are accused of meeting in virtual chatrooms and planning the fixing of benchmark prices.

These two stories encapsulate all that we have come to expect from the whole financial tribe: incompetence (Credit Suisse says it only realised its mistake weeks later), greed, and the taxpayer having to foot the bill for legal process.

And they are only the latest examples, after the Libor scandal, the payment protection insurance debacle, and of course the sub-prime loans disaster that ushered in the collapse of Lehman Brothers and the 2007 crash. Add to this dramatic frauds of Société Générale’s Jérôme Kerviel (loss: €5bn) UBS’s Kweku Adoboli (over £1.5bn) and Nick Leeson, the original rogue trader. It’s not surprising that there is a deep disdain for the financial industry. But these sorry tales represent systemic, not individual failures.

Which is not to say that any of this arose from intentional bank policies. There is no hand-rubbing fat-cat chairman telling people to get away with as much as they can. A system will always be tested by those who form part of it. The bounds of what is legal will be pushed, with people out to make as much as they can on the margins. In some cases the innovations and technology they come up with mean that the law has to be rewritten in order to keep up. The ability to purchase high-speed data and monopolise the high-frequency trading market is the latest example of this.

This probing and stretching of the system is a law of nature. Bankers aren’t a different species. They are you and me, just in situations where there is much more money at stake, and the parameters of what is legal and what isn’t are far from clearly defined.

The parliamentary commission on banking standards concluded in 2013 that “too many bankers, especially at the most senior levels, have operated in an environment with insufficient personal responsibility”. This is reflective of a general view of the industry as suffering from a surfeit of weak, greedy individuals, not the lack of a decent regulatory framework.

Sorting out banking, making mistakes less likely to happen, is not about people cleaning up their act. The financial regulator is not there to act like a badass new sheriff in town who is going to cleanse it of the riffraff and crack down on loose morals. There is, of course, a place for regulatory vigilance, for forcing entire institutions to clean up after themselves by paying hefty fines, and weeding out bad practices.

But we also have to come to terms once and for all with the absolute inevitability of such behaviour if the basic structure, primarily the size and unwieldiness of what are effectively financial cartels, is not broken up. The separation of investment and retail banks, indeed a separation of all “too big to fail” banks into their individual sector components is imperative. As is an honest reckoning with the soft monopolies such institutions enjoy, and how they influence ostensibly independent auditing agencies and political bodies.

It is precisely our faith in personal responsibility that continually fails the market. What would you do if the system allowed it?


Nesrine Malik

The GuardianTramp

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