Managing the Risk of People Making Bad Decisions
Another day, another banking scandal!
Just this week, the New York State Department of Financial Services (NYDFS) hit Barclays bank with a huge fine of US$ 150 million, as a result of the bank admitting it had “engaged in certain misconduct regarding the trading of benchmark foreign exchange (“FX”) rates from at least 2008 through 2012 in violation of the New York Banking Law and other laws” [1].
Continue reading “Barclays – Another Code of Conduct failure!”
Schadenfreude is an emotion that many non-Germans are indulging in at the news that Volkswagen is not the squeaky clean corporation that everyone believed it was.
Continue reading “It’s Grimm for Volkswagen”
On September 11th, twelve ‘Too Big To Fail’ (TBTF) banks reached an in principle settlement in a class action lawsuit to resolve investor claims that the banks conspired to fix prices and limit competition in the market for credit default swaps (CDS).
The historic settlement is estimated to cost some $1.865 billion which, as the claimants’ lawyers said [1], was “one of the largest antitrust class-action settlements” in the financial area.
Continue reading “A festering SORE”
Almost 10 years after the manipulation of the LIBOR benchmark was first detected to have happened (although there is ample evidence that misconduct had been going on for years prior to that) the first LIBOR trader, Tom Hayes, appeared in court this week [1].
Continue reading “How many Traders does it take to change a LIBOR?”
In April 2015, two UK subsidiaries of the Bank of New York/Mellon (BNY Mellon) were fined some £126 million for failing to “consider properly the interests of their clients”. BNY Mellon is the largest custodian bank in the world and one of the world’s Systemically Important Banks (SIB).
But has BNY Mellon become Too Big to Care?
HSBC has been in the news a lot just recently and the UK Parliament Public Accounts Committee (PAC) were grilling three more executives on Monday 9 March to delve further into the tax evasion scandal that happened at the banks Swiss subsidiary. It was a grueling encounter even for the most hardened company executive not helped by the live television screening which no doubt provided some members of the PAC with the opportunity to play to the camera.
Continue reading “People risk in the boardroom: failure to accept personal responsibility”
Both the Chairman and CEO of the banking behemoth HSBC have recently appeared before the Treasury Committee of the UK Parliament in connection with the Swiss Tax Scandal [1]. The bank’s Board had previously issued an apology for the scandal to its shareholders and the public in general [2].
The argument made by the HSBC Board is basically “We didn’t know, how could we? We are a huge organization. It would not happen today”.
Ignorance is bliss.
The S& P saga rumbles on. Having been hammered by the US Securities and Exchange Commission (SEC) in January [1], S&P has received a knock-out blow, and a $1.375 billion fine, from the US Department of Justice and 20 State governments [2]. And in what might the first of many private actions, S&P also reached a separate $125 million settlement with the huge pension fund California Public Employees’ Retirement System (CALPERS) [3].
What has received little publicity, however, are the implications of the S&P settlement with regard to Corporate Governance, in general, and Codes of Conduct in particular.
Continue reading “Does the S&P Settlement change EVERYTHING?”
In January, the US Securities and Exchange Commission (SEC) announced that Standard & Poor’s Ratings Services (S&P) had agreed to pay almost $80 million to the SEC and other regulatory agencies for a series of federal securities law violations involving “fraudulent misconduct in its ratings of certain commercial mortgage-backed securities (CMBS)” [1]. S&P was also banned for one year from issuing ratings in the commercial bond market.
A recent research report [1] suggests that an ethnically diverse group is better at making decisions than a group that are all alike. These results build on other studies that show that diverse groups in general are better at making decisions [2]. Irving Janis, who first identified the concept [3], argues that ‘homogeneity’ is one of the key prerequisites for Groupthink, which is a bad outcome. So all we have to do to prevent Groupthink is to insist on diversity, especially at the Board level?
Whoa, hold on, it is not as easy as that! It turns out that it doesn’t come down to ‘diversity’ per se but ‘Trust’.
People Risk Management 