A new banking scandal is emerging. As the Guardian reports:
An epidemic of errors in credit and loan agreements is the latest expensive scandal to hit the banking sector, with the cost already approaching £1bn. HSBC disclosed on Monday that it is setting aside hundreds of millions of pounds to refund customers for mistakes made in paperwork.
It has to be made clear that the mistakes the banks made are not on high risk transactions. Nor are they on complicated issues. They relate to things like forgetting to tell people how much they ave borrowed on bank loan statements, and that they have the right to repay the loan early if they want. That's the sort of thing covered by routine regulations and which can be got right by comparing the bank's statements to a pre-prepared check list. But it looks like no one did it. The result is that the banks charged interest illegally.
Now you can say anyone can make a mistake, and that's true, of course. But in this case it's not anyone making a mistake. It's lots of banks making these mistakes apparently and the clear implication is that, yet again ordinary customer's interests may have been prejudiced. That's important.
As important is the fact that this is hardly the first such mistake. PPI rolls on still.
More important still though is who is making the mistake. Bankers are the supposed all seeing, all powerful, all knowledgeable brains of the universe. And they cannot design simple forms, or even apparently comprehend the need to do so. Now consider that these same banks have derivatives outstanding at any time for sums vastly greater than the entire world's GDP which if they go wrong could plunge the whole world economy into a tail spin in a few hours. They can't prepare a bank statement but we trust them to do that. The question does have to be asked, are we mad?
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Ah yes, as I like to remark whenever I see some right winger drone on about the virtues of markets, deregulation, etc, etc……It’s the Superior efficiency of the private sector!!!!!
If only we had a completely free market then there would be no corruption, the actors in the market place would act as perfect utilitarians, bs, bs…
Tonight, I’m thinking of looking for the fairies at the bottom of my garden. I think there is more chance of my finding them than there is of Austrian economics working in the real world!
“If only we had a completely free market then there would be no corruption, the actors in the market place would act as perfect utilitarians, bs, bs..”
bs bs indeed. This is another of the arguments trotted out by the libertarian right to excuse the failure of their ideology; it’s not that deregulation and the market are not always the best solution in the real world, but that we haven’t had enough of them! So it’s not their fault we’re in the mess we’re in, but ours for not being good enough for their perfect system.
Meanwhile in the real world of flawed, irrational human beings, we see that one of the world’s biggest banks can’t even design a relatively simple form properly.
What is a derivative loan please ?
A typo
Corrected
If you can’t type correctly how are we supposed to trust you ?
May he without fault cast the first stone
I do not believe you have never done a typo
In which case, very politely, stop being stupid
It doesn’t look like a typo to me. A typo would look more like “derivqtive” or “ferivative”.
Ever heard of auto correct on a Mac?
And paranoia?
So the Apple Mac will take the word “derivative” and automatically add the word “loan” to it. That would certainly induce paranoia – people might think one was a complete idiot!
It did add loan
It does not mean I intended it to
I suspect I typed something quite different – I have no idea what now – but who cares
Only a fool would think this an issue of significance
I tried it on my mac and it did not insert the word “loan”
I am sure it didn’t
But then I have no idea what I typed in the first place, and nor have you
And who cares
I made a mistake. So what? Grow up is the polite answer to your comment
And, just in case you’re a real pedant, there is no law on typos in blogs
There is on bank loan statements
No further comments will be accepted
Derivatives bubble = 1.2 quadrillion dollars.
And these people are the experts?
Derivative markets will always eclipse the size of the underlying market. There’s no inherent problem with that.
What matters is the net exposure of those derivative contracts and that’s a matter for counter-parties to assess on their own account, not the banks who facilitate the contracts.
Ask any CFO with large floating rate debt liabilities and she will tell you that interest rate swaps – by far the largest derivatives market globally – are an absolutely essential part of the financial management of her business. Again, no inherent problem with that: Her business pays to lay off risk to a counter-party who is willing to take it.
And some of them are banks
In this particular case it is likely that rather than suffering any detriment customers will be quids in. Many of these errors will have been irrelevant to the customer, but because of technical breaches they can essentially get a loan for free. Indeed, I would go so far as to say that savy bank customers now have an incentive to bank with the most error prone banks. They can manage downside risk by checking mistakes aren’t made and benefit in the regulatory upside if similar errors come to light at any point. A free option in effect.
The failure to advise is relevant
But I also agree some will not have lost
This is/was the case with many of the financial scandals. I was far too young to take a mortgage in the 1980s but know of many people who claimed endowment misselling and took compensation on the grounds that they weren’t advised of the risks that they could fall in value. To a man they knew full well they could fall in value, but also were advised to claim on the basis that the burden of proof fell to the banks in question on a case by case basis.
I was around in the 80s and was advising clients and to a woman and man most had no clue of the risk they were taking with endowments
Respectfully, you are wrong, not least because in much of this period risk warnings were not required
I take it you advised your clients to take out repayment mortgages then. It would have been refreshing to see such integrity at that time.
I took one for myself in 1987 and advised everyone else to do the same
I don’t know when UK clearers started selling interest rate and foreign currency derivatives without seemingly to be required to undertake due diligence that the client fully understood the product and its risk profile. I escaped the Square Mile in 1998. At that time only staff that had been trained, qualified and authorised under the FSA Code (sorry, I can’t recall its exact description) were permitted to market and sell such financial products. Marketing was restricted to corporate clients and private clients were excluded. The process required the completion, to the satisfaction of Compliance Officers, of an evaluation of the client’s attitude to risk and evidence of their understanding of it.
It’s only when it costs them money that the customer decides they didn’t understand the arrangement at outset….
The customer did not decide
The regulator decided the banks broke the law
That matters. And that means the contract was not enforceable. I thought property rights matter to you?