European Commission Probes Global Bank Collusion

By Heide B. Malhotra, Epoch Times
July 11, 2013 5:16 am Last Updated: July 11, 2013 3:51 pm

Public trust in banks is eroding further with every new revelation or investigation. The fallout is not only against management at banks, but also against regulators, as they are blamed for neglecting their fiduciary responsibility to the taxpayers of the United States, Britain, and other developed countries.

“Trust in banks and bankers has eroded. Three factors explain that collapse … [people] doubt banks’ values; and they doubt whether banks have their interests at heart,” stated a 2012 Risk Center article. 

Erosion of trust and confidence in banks began in 2008 with the financial crisis. Disclosures from banks could no longer be believed. The question always remained as to what these banks were still hiding.

“Trust in banks, globally, is now 11 points lower than it was in 2008,” stated a 2013 announcement by public relations firm, Edelman, based on survey results. 

New regulations haven’t improved trust in the banking sector. Banking sector analysts suggest that banks have grown larger and less transparent than ever. Moreover, banks, given the massive government bailouts they received and their “too big to fail” status, are taking the same or even greater risks today than before the financial crisis. 

Earlier this year, JPMorgan Chase & Co., considered at the time to be one of the safest and best managed banks, reported a $6 billion trading loss and was caught underreporting its ever-increasing losses during 2012.

In 2012, the Libor scandal shocked the world, especially after the media reported that the U.S. Federal Reserve, the Bank of England, and the British Bankers Association were privy to the Libor manipulation activities for at least five years but claimed that they could only play an advisory role. 

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“The foreclosure debacle involving the largest mortgage servicers, the London Whale incident at JPMorgan Chase, the money-laundering probe into HSBC—all of this has only accentuated the public’s mistrust of the banking sector,” stated a recent American Banker Survey of Bank Reputations report. 

Facing Scrutiny

The latest investigation made public is targeting Bank of America Merrill Lynch, Barclays PLC, Bear Stearns Co., BNP Paribas S.A., Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC, JP Morgan, Morgan Stanley, Royal Bank of Scotland PLC, UBS AG, and financial information service provider, Markit Group LTD.

The European Union (EU) charged the above-named financial institutions “with colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009,” according to a July 1 statement of objections (SO) press release by the European Commission. 

During the three-year period in question, the Deutsche Boerse and the Chicago Mercantile Exchange had hoped to get involved in the credit derivative business and directed Markit to attain the required licenses. The banks allowed Markit to provide only a license for over-the-counter (OTC) transactions, with some of Markit’s bank members objecting even to that.

The banks were worried about losing income from being intermediaries in the OTC market if the exchanges were licensed. 

The EU has sent the SO detailing its preliminary findings to the respective banks, charging them with collusion and accusing them of having violated EU antitrust rules that prohibit anti-competitive agreements. 

In EU antitrust investigations, an SO is the formal step that advises the accused of the complaint. According to EU law experts, the SO does not rule out exoneration of the accused, but prior cases have shown that the commission does not send out such notices without having established grounds and a sound case. The SO is only sent out after a thorough investigation. 

A recent Money Morning article suggests that the respective banks are being called to task and having their names smeared one more time. 

However, it is not all bad news for these financial institutions, given that they have ample funds to pay any fines they may incur and that none of those involved risk facing prison time if found guilty. Thus, it’s business as usual for big banks.