Once upon a time banks were trusted institutions in America. Not only were they a secure place to put your money, but it was assumed that your bank and banker were looking out for your best interest. However, many Americans lost their trust in banks in the aftermath of the 2008-2009 financial crises, and banks have done little since to earn back the trust and respect of the public.
Banking scandals go back to 1494
Banking scandals have been around for a long time. One of the first known bank failures occurred in Florence in 1494 when the Medici Bank used their depositor's monies to fund their Italian owners’ extravagant lifestyle, forcing the bank into insolvency.
In the fall of 2008, Lehman Brothers was forced to file for bankruptcy after it suffered massive losses in investments in unsecured mortgage debt. This failure was followed in short order by a liquidity crises at AIG and Washington Mutual Bank, and the failure of Bear Sterns.
FDIC closed 465 banks between 2008 to 2012
Between 2008 and 2012, the Federal Deposit Insurance Corporation (FDIC), which is charged with overseeing banks in the U.S., closed 465 banks across the country. In the previous five years, only ten banks had failed. The banking crises started in the U.S. but quickly spread around the world.
It was the year the neo-liberal economic orthodoxy that ran the world for 30 years suffered a heart attack of epic proportions. Not since 1929 has the financial community witnessed 12 months like it. Lehman Brothers went bankrupt. Merrill Lynch, AIG, Freddie Mac, Fannie Mae, HBOS, Royal Bank of Scotland, Bradford & Bingley, Fortis, Hypo and Alliance & Leicester all came within a whisker of doing so and had to be rescued. — The Guardian
Did banks learn from 2008?
So, did the banks learn a valuable lesson from 2008 that will protect our financial system in the future? Apparently not. In 2015 four of the world’s largest banks plead guilty to felony charges brought against them by the U.S. Department of Justice and paid fines totaling $5.6 billion. The banks had been accused of currency manipulation by fixing the price of currencies in the foreign exchange markets.
An extensive study on behalf of a major law firm found “a deep-seated culture of immoral behavior among bankers in the United States and Great Britain. The study concluded that the situation was getting worse, not better, noting “a marked decline in ethics” since the first study was conducted.”
Wells Fargo fires 5,300 employees
In September, it was revealed that Wells Fargo Bank had fired 5,300 employees for engaging in fraud. It was discovered that bank employees were signing existing bank customers up for new accounts and services that the client didn’t authorize or know about. A fine of $185 million was levied against the bank and its Chairman, John Stumpf was called before a Senate committee to answer questions about the massive fraud committed under his watch. Mr. Stumpf claimed he knew nothing about the mass fraud until 2013. Left unanswered was the question of why if this was occurring back in 2013, were Wells Fargo bank customers only now being told of it.
Eight years after the near-collapse of the world economy because of the recklessness, greed and dishonesty of U.S. financial-services firms — and because of the failure of U.S. regulators — we have a fresh reminder about the threat posed by such behavior in banking. — The San Diego Union-Tribune
Morgan Stanley accused of “cross-selling.”
The latest unethical behavior on the part of banks was exposed on October 3rd when William Galvin, Massachusetts’s chief security regulator, accused Morgan Stanley of “dishonest and unethical conduct” for pushing brokers to engage in improper sales contests. Morgan Stanley has denied the charges.
This complaint lays bare the culture at Morgan Stanley that bred the high pressure effort to cross sell banking products to its brokerage customers without regard for the fiduciary duty owed to the investor. — William Galvin – Massachusetts Secretary of the Commonwealth
Change ‘opt-out’ to ‘opt-in'
According to an article in The Washington Post, the cause of much of the unethical behavior lies in the effort by banks to “cross-sell” their customers. Most folks can attest to the cross-selling efforts by the unending stream of banking offers that show up in the mailbox or online. Banks, with the help of Congress, have an ‘opt-out’ policy rather than an ‘opt-in’ one when it comes to receiving unsolicited offers for a new credit card or other bank services. The process of ‘opting out’ is designed to be complicated, and time-consuming for the consumer. Changing to an ‘opt-in’ policy is one immediate step banks could take to limit cross-selling by ensuring that only customers interested in receiving new offers receive them, but don’t hold your breath waiting for that to happen.