When looking for a blog to follow, I ran some preliminary searches for topics including banking, ethics, and fraud, and eventually found myself on a blog called Justice League. The blog was started by an investigative reporter looking to shed light on fraud and scandals.
I was particularly interested in an article from the summer about the LIBOR rate-fixing fraud, which I commented on. The article highlighted the history of the London Interbank Offered Rate (LIBOR) and a brief description about how major banks in the UK and US colluded to artificially raise the rate before the financial crisis, and then to lower it after the crisis to make them seem stronger than they were.
In the past year, we have seen a variety of frauds, scandals, and blunders come out of the financial industry including the UBS rogue trader, the JP Morgan whale, and now the UBS whistleblower). In this article from Bloomberg, Goldman Sachs analysts claim that the recent downturn in profits from the banking sector is not cyclical, but structural. I think this explains a lot of the fraud we have been seeing this year, as banks are becoming desperate for any kind of profit, and turn to collusion, tax evasion, and unethical practices to make money.
The 2002 Sarbanes-Oxley Act outlined rules for corporations to actively search for and report bad business practices within their company, while it is hard to enforce this, I think that the SEC and IRS can look to individuals.Disgruntled employees, like the UBS whistleblower, who are sick of watching their company’s engage in fraud and unethical practices, might take his actions as an example and hopefully follow suit. A $104,000,000 reward doesn’t hurt either.
I think the increasing amount of risk banks are taking on, as well as disgruntled employees, and high levels of consumer mistrust of the industry are leading towards a change in financial industry.