Who pays for banks’ sins?

HSBC building

The price in today's money of past sinning by the UK's biggest international banks is becoming bigger and bigger.

HSBC is paying $1.9bn (£1.2bn) in fines and forfeitures to assorted federal and state authorities for its inadequate controls against money transfers by criminals, terrorists and countries that are subject to sanctions (such as Iran).

In a statement, HSBC apologised and said it had changed its ways. It expects to reach a settlement soon with the UK's Financial Services Authorities relating to the same offences.

The $1.9bn is significantly more than the penalties HSBC expected to pay - even after its recent upward revision of provisions to cover such charges. Also the cost for HSBC of raising its defences against money laundering and illegal money movements will be $700m (£435m) over five years.

Odd as it may seem, it could however have been significantly worse. HSBC has signed a Deferred Prosecution Agreement for breaches of the US Bank Secrecy Act, the Trading with the Enemy Act and assorted money laundering offences. This is in effect putting the bank on probation.

But if HSBC had been indicted for these offences, that would have meant that the US government and others could no longer have conducted business with it - which would have been humiliating and highly damaging.

The punishment of HSBC comes just a day after another UK based international bank, Standard Chartered, agreed to pay $327m (£203m) for past violations of US sanctions laws and "lack of transparency in connection with certain former payments practices which were terminated in 2007".

Standard Chartered, which also signed a deferred prosecution agreement, had already paid $340m to New York State's Department of Financial Services for the same offences.

Now, for the avoidance of doubt, there is a trend here - which is that every big British bank is struggling to keep control of the costs of fines and compensation relating to a great variety of forms of sloppy practices and misbehaviour in the boom years.

It won't be long before we begin to learn the fines that Royal Bank of Scotland will pay to regulators all over the world for its involvement in the LIBOR interest-rate rigging scandal.

RBS is likely to end up paying more than the £290m in fines and penalties paid by Barclays - though that may not be apparent for a while, since RBS is not expected to reach a big bang settlement with all authorities from Tokyo to Brussels to Washington at the same time.

Then there are the stupendous costs of paying compensation to UK retail customers who were missold PPI credit insurance - which, according to the FSA, was more than £7bn by the end of September and looks set to end up being considerably more than £10bn.

And then there are the difficult-to-pin-down costs of compensating small businesses who were sold inappropriate interest-rate swaps - which will certainly be rather more than £1bn in aggregate and possibly (in an unlikely worst case for the banks) a multiple of that.

In addition, most of the banks face civil cases from disgruntled investors related to these and other alleged failings that stem from the exuberance of the boom years.

All of which is of material interest to the banks' customers and shareholders.

The point, as the Governor of the Bank of England said recently, is that banks may not have adequate capital to absorb the full financial cost of all the punishment being meted out for banks' past sins.

And as you will be tired of hearing, capital is expensive. And when banks are obliged to raise more of it, the burden falls initially on investors and subsequently on customers - who are forced to pay more for banking services to reward the providers of the capital.

Or to put it another way, we are all punished when banks are found guilty.

Robert Peston, economics editor Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 284.

    Franco asks what crimes the bankers have committed.

    It is not clear whether he is asking about the employees or owners of the banks.

    Many of the employees have committed fraud against each other and the public. Of course, if a crime needs to be prosecuted before we call it a crime, then there is no crime!

    The owners of the banks are just doing what they have done for centuries, above the law.

  • rate this

    Comment number 283.

    What we really need to do is to preserve and reassert capitalism. (#279,#274)

    Capitalism has the mechanisms to 'fix' the banking problem and we must let its restructuring process run its course.

    Presently the idiots at the BoE and HM Treasury are doing almost exactly the wrong things. Their foolishness may be well meant but it is wrong as it is preventing capitalism's mechanisms from working.

  • rate this

    Comment number 282.

    Are we really seeing the breakdown of our civilisation with these non-prosecutions?
    Why should the USA get rich from Non USA banks?
    Why should the USA profit from fining companies like BP?
    My viewpoint is that trade with the USA isn't worth the cost and the restrictions of laws passed by them against non Americans and their restraints on trade.

  • rate this

    Comment number 281.

    US financial services is heavily regulated with a host of regulatory agencies competing for influence & power. Add a hugely complex regulatory system with many overlapping responsibilites & Obama's political ambitions where he has made key appointments, each of whom has a huge desire to drive their own agenda & enhance their political standing and you get a feel for issues facing businesses.

  • rate this

    Comment number 280.

    A more apposite question might be 'who pays for the sins of the USA'? Is it any coincidence that US regulators impose penalties well in excess of any elsewhere, and mainly on foreign companies, whilst their deficits need funding? Either Europe should make it clear that this must stop or we must levy similar penalties on the US banks (Goldman, MS etc) who defrauded the world in 2008/9.

  • rate this

    Comment number 279.

    The bankers have annihilated capitalism and we now have a dictatorship of bankers - a bankocracy.: government by bankers for bankers where all legitimated democratic rights of the people are subjugated to the 'needs' of the banker.


    It is also unacceptable to do nothing about it! So we must do something (see #274)!!!

  • rate this

    Comment number 278.

    A trader manipulates LIBOR and the banks steal from us. The politicos wring their hands and complain there isnt legislation to prosecute. Nobody goes to jail, no bonuses are clawed back. If the same trader makes a deal that loses the BANK money then he's declared "rogue" they take his money and he goes to jail. Why aren't the laws that are used to prosecute "rogue" traders used when banks steal?

  • rate this

    Comment number 277.

    "And it may sound tough, but flaky interest rate swaps, ppi mis-selling..? No-one heard of caveat emptor?"

    I've got some stuff to sell. It doesn't remotely resemble what I say it is, but give us all your money and we'll say no more about it eh? If you don't like it - tough, no comeback

    Your fault for being such a sucker

    Criminal law? Fraud? Never heard of them

  • rate this

    Comment number 276.

    What sickens me is how amoral bankers have become. They inflated their performance during the 'good' years by dubious acts and went on to pay themselves large bonuses. Now that they've been found out, we have to pay the cost. However, the very same people (barring a few infamous ones) are now telling us how well they are doing in discovering those illegal acts & paying themselves large bonuses.

  • rate this

    Comment number 275.

    Capital is expensive, is it?

    For whom?

    When bank owners are permitted to expand their capital by fractional reserve credit from a central bank, one might think that capital is almost free. 90% comes from thin air.

    When bank owners lose their money gambling on markets, and need yet more capital, then they get it from unborn taxpayers.

    Capital is a birthright for some, a debt for others.

  • rate this

    Comment number 274.

    There seems to be quite a lot of ill-focused anger at the way the banks are taking advantage of the people.

    Try focussing it!

    Consider a cultural revolution (à la Chairman Mao) with re-education camps, sending bankers to work as forced labour on the land and humiliating public denouncements.

    We know it works, but have we the backbone ( or cadres of revolutionary guards) to carry it through?

  • rate this

    Comment number 273.

    I'm no great fan of banks, but what crimes pray tell have they committed? Lent money to dodgy geezers, bought iffy businesses, transferred money from one place to another. Er, so what's new?

    Govts are quite happy when banks finance their own dodgy practices, but when it comes to others...?

    And it may sound tough, but flaky interest rate swaps, ppi mis-selling..? No-one heard of caveat emptor?

  • rate this

    Comment number 272.

    How is it that with all the bad behaviour that went on, nobody has ended up in the slammer

    Because nothing went to court, so nothing proved.

    Difficult to bang someone up without a verdict, even in the USA.

    Guantanamo Bay doesn't count!

  • rate this

    Comment number 271.

    Well, malfeasance has already wiped out the Shareholders (Pension Funds, Life Assurance Policies), so Customers and Tax payers end up paying !
    Prison Sentences all round !

  • rate this

    Comment number 270.

    At least the US government is actually doing something. I haven't noticed any action happening in the UK and there is a hope that prosecutions will start to accelerate with the new Obama term and new appointments in the banking oversight committee. One can hope at least. Long may that continue.

    I would say this country is too politically and economically weak to take on the banks.

  • rate this

    Comment number 269.

    All that can really be said, has just been in Roberts article.
    Was it all worth it?

    Meanwhile, our hero of Gotham City may soon be reaching for his belt. Whilst no great fan of the gentlemens club centred about BIS, there are interesting alerts coming from that quarter.

    Todays CityAM cover page hints at excess liquidity reported by BIS and since capital isn't going to banks, where is it going?

  • rate this

    Comment number 268.

    How is it that with all the bad behaviour that went on, nobody has ended up in the slammer

  • rate this

    Comment number 267.

    'Sins'? Strong but, in some cases, possibly true condemnation. However, there are those who would say that, ever since that chap took a chunk out of rather tempting apple, we are all sinners and that many took a wedge from the banks out of greed, envy, sloth, vanity etc. that they couldn't afford so perhaps 'wrath' over banks and bankers is just compounding the problem?

  • rate this

    Comment number 266.

    'Who pays for banks sins?'

    The problem is Rob that most people are unaware or do not care. This is what people are really interested in.


  • rate this

    Comment number 265.

    @257.bigmouth strikes again

    I blame Walpole.
    Or Pitt (don't know which one)

    No, it was Gladstone wot done it!


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