Despite record fines and legal settlements during the past year, totaling $56 billion, bank regulators and Congress are dismantling the very progress that had begun.
The most recent revelation comes as Britain's Financial Conduct Authority discovered that UBS, Royal Bank of Scotland, HSBC, JPMorgan Chase, Citigroup and Bank of America did not exercise appropriate management of trades in the G10 spot currency exchange market from January 2008 through October 2013, long after controls were to be implemented following the Libor rate-rigging scandal.
Mark Carney, governor of the Bank of England, suggests these scandals indicate the financial pathology is systemic, not the result of isolated rogue agents.
Given these egregious activities, it is counterintuitive for financial regulators and Congress to become more lax, as has been the case.
Recently, the Federal Reserve delayed a Dodd-Frank financial reform provision, giving banks at least two additional years to divest from speculative investments in private equity funds and hedge funds. The original deadline of July 2015 has been extended to mid-2017, or perhaps as late as 2022. The Securities Industry and Financial Markets Association estimates its members have nearly 3,000 funds that remain illiquid, which require more time to be sold without severe market disruption and large losses to the banks.
Earlier this year, the Fed delayed another provision, which would force the banks to downsize if they did not submit an orderly plan to dismantle during a period of impending failure. This delay permitted the banks to continue with taxpayer-subsidized risk taking.
Eleven banks presented unsatisfactory living wills. The financial institutions involved are Bank of America, Bank of New York Mellon, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and UBS.
Making matters worse, Congress recently passed legislation to undo a key portion of the Dodd-Frank financial legislation, thereby permitting the continuation of implicit federal tax subsidies for bank derivative investments that hedge risks and enable proprietary speculation.
Paul Volcker, former Fed chairman under Presidents Carter and Reagan, implies incredulity when looking at the considerable amount of time it is taking the financial industry to reorganize itself, especially given its professed prowess in this endeavor for other industries and companies. He suggests financial firms might be interested in delays in an attempt to ultimately dismantle much of the financial reform legislation.
The regulatory community and Congress have not been consistent in enforcing and maintaining the statutes for an effective reformation of our financial landscape. The financial metastasis is systemic and remains a serious threat to our economic well-being.
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