The Price of Ethics
In financial services circles, it’s hard to find a more venerable name than Lloyd’s Banking Group. The institution’s history goes back to the founding of Lloyds Bank in 1765, making it older even than the United States. It’s still massive—the fourth largest company on the London Stock Exchange, besides having a listing on the New York Stock Exchange—and it has significant global influence with operations in the Middle East and Asia as well.
Now imagine this august institution’s activities being slammed as “highly reprehensible, clearly unlawful,” with possible “criminal conduct on the part of the individuals involved.” Sounds like Occupy Wall Street rhetoric with a British accent, but it’s not: That’s coming from Mark Carney, Governor of the Bank of England, as part of a verbal lashing administered in late July. In these hallowed circles, it takes a lot for the head of one big institution to bash another, but it’s definitely happening.
The reason is not a secret. In the latest fallout from the ongoing Libor scandal, Lloyds had to pony up some $380 million while admitting to extensive manipulation of the markets, which in turn affected the Bank of England.
While this has to do mostly with shenanigans across the pond, it fits into the pattern of misbehavior on the part of financial services conglomerates. Remember, it’s been six years since the industry tottered on the brink, with some big names going under and others surviving only with a taxpayer-funded bailout. Back then, it was widely assumed—and generally promised—that there would be systemic changes to prevent this kind of malfeasance.
So what’s happened?
Sadly, the drumbeat of news around breaches at conglomerates shows no signs of even slowing down, let alone ending. To name just a few, there’s Citigroup’s Banamex fiasco in Mexico, manipulations by Barclays employees in New York and JP Morgan shelling out billions to regulators and investors alike. It’s no wonder that a leading light of the industry like the Governor of the Bank of England publicly vents his frustration. And of course, he’s not the first. Nor is he likely to be the last, given the ongoing scandals.
Indeed, when the phrase ‘too big to fail’ first emerged, and ‘too big to jail’ came not long after, they seemed to encapsulate all that is wrong about an otherwise great industry—unparalleled arrogance matched by a lack interest in learning from mistakes. Still, the hope was that it was only a moment in time, an unfortunate episode destined to fade from memory. After all, how often do multibillion-dollar conglomerates need to be bailed out by taxpayers thanks to overreach on the part of highly compensated executives?
To be sure, we’re not there just yet. Indeed, the government is even less inclined now to step forward with bundles of cash. But the repeated ethical violations by corporations that really should know better is a sorry sight anyway. There is also the painful awareness that the people at the top will be just fine, a few Bernie Madoffs notwithstanding—that ‘too big to jail’ cliché is lamentably accurate.
In the recent past, every time a new scandal or giant settlement comes to light, it gives ammunition to the chorus of critics clamoring for harsher punishments. The statement made by the Bank of England governor is having exactly that effect over there, and there’s no shortage of similar calls here.
There’s no question that the vast majority of banking professionals are able to do their jobs, and their part to boost the economy, without breaking the law or going to the government for a bailout. But given their high profile, a few bad apples continue to make that task much more difficult.