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Banks Pay Huge Fines, Again. This Time For Foreign Exchange Trading Abuses

J.P.Morgan logo There is an interesting article in the Washington Post titled, "You Should Never Underestimate How Far Bankers Will Go To Game The System." Several banks recently paid huge fines:

"This time, it's a $4.2 billion fine. That's how much UBS, HSBC, Citibank, JP Morgan Chase, Bank of America, and the Royal Bank of Scotland are collectively paying to U.S., U.K., and Swiss regulators for rigging the foreign-exchange, or FX, market."

Citibank logo How the banks rigged the trading exchange:

"Traders at supposedly competing firms worked together to rig the benchmark FX rates in their favor. They deliberately triggered clients' stop-loss orders—the price they'd automatically sell at to limit losses—to boost their own profits. Along with revealing what trades their customers were about to make, which would let them all make it first... the bankers set up [online] chatrooms charmingly named things like "the 3 musketeers" where they planned all this out..."

Bank of America logo Kudos to regulators for catching the banks doing illegal activity. Before, it was abuses with residential mortgage-backed securities. The banks have often apologized for the abuses, but those apologies (and fines) are a mild, first step. Consequences must be more extensive.

U.B.S. logo This latest set of fines highlight what is wrong with the banking sector. Basically, the wrongdoing will continue as long as the likelihood of getting caught is low, no bankers go to prison, and the profits from said activities exceed the fines paid:

"... it's important to remember that these penalties are just the price of doing business for big banks—and tax-deductible ones at that.  And that's why the better news is that the Justice Department is still looking into criminal charges against some of these traders. Far too often, as Matt Taibbi has argued, the Justice Department has all too happy to have banks cut them a fat check rather than—and at the expense of—pursuing criminal charges that are hard to prove and even harder to explain to a jury."

The trading abuses went on for years. The Guardian UK reported:

"Two UK and US regulators said they had found a “free for all culture” rife on trading floors which allowed the markets to be rigged for five years, from January 2008 to October 2013.... In the UK, UBS was handed the biggest fine, at £233m, followed by £225m for Citibank, JPMorgan at £222m, RBS at £217m, and £216m for HSBC. Barclays has yet to settle. In the US, the regulator fined Citibank and JP Morgan $310m each, $290m each for RBS and UBS, and $275m for HSBC."

Consumers: when fines are tax deductible, it's a huge gift to banks because you are paying for the wrongdoing and not the banks. If fines continue to be tax-deductible fines, enforcement agencies fail to put bankers in prison, and politicians support the status quo, then the time to gather your torches and pitchforks fast approaches.


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