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£150 billion in five years – new league table throws new light on cost of banking misconduct

Ten of the world’s leading banks have racked up fines and similar "conduct costs" of nearly £150 billion over a period of just five years.

This is one of the findings revealed in a new analysis published today (Thursday 28 November) by the London School of Economics and Political Science (LSE).

The researchers, led by LSE Professor Roger McCormick, assessed the costs accrued by ten of the world’s leading banks across the UK, Europe and America as a result of misconduct. When put together, and reviewed over the period 2008-2012, these ten banks alone incurred nearly £150 billion for misconduct of various kinds, including mis-selling PPI and other products, manipulating LIBOR, and failing to observe anti-money laundering rules.

The project's findings give, for the first time, a picture of how the banks compare with each other. 

For the full league table see Summary table of bank conduct cost results (5. yr period ending 20120)

Professor Roger McCormick, who led the LSE Conduct Cost Project, said: “This league table allows the public for the first time to view an independent, objective set of figures which relate in one way or another to bank behaviour over the five years ending December 2012 (including provisions as at that time). The banks ranked here are all household names. The fundamental question is: can we expect these costs to start going down soon if these banks now have sound ethical cultures? If not, why not?

“Banks are required by regulators to "know your customer" (KYC) and, in any event, they can't help knowing rather a lot about us simply by virtue of the fact that they know a lot about our finances and what we do with our money. But do we know as much as we should about them? Is it time for more "KYB"?

“If we knew more, would we be more choosey about who looks after our money? We may moan about the banks but, as things are, we seem to be fairly docile customers, slow to change accounts, however disgruntled we may feel about banks in general. This is partly due to inertia ---it's seen to be something of a hassle to change banks when compared with, say, trying a new brand of washing powder. But it's also due, at least in part, to the lack of readily available, accessible information about just how "good" or "bad" banks actually are. Notwithstanding the ongoing scandals, they say they are (at last) trying to be more ethical than in the past and determined to "restore public trust". How can we test that? Is it just the latest PR message or is there some substance to it?"

Details of the statistics behind the above table can be found on the LSE Conduct Costs Project blog at http://blogs.lse.ac.uk/conductcosts/|  

The LSE Conduct Costs Project is led by Professor Roger McCormick, director of LSE’s Sustainable Finance Project and a visiting professor in LSE’s Department of Law. He is the author of Legal Risk in the Financial Markets (OUP 2010).

Ends

Contact:

Professor Roger McCormick at 07802 604316 or email r.s.mccormick@lse.ac.uk| 

LSE Press Office on 020 7955 7060, pressoffice@lse.ac.uk|   

Notes for editors

Summary table of bank conduct costs results

These figures should be read subject to the points made under "Notes on the Interpretation of the Figures" which can be found at http://blogs.lse.ac.uk/conductcosts/|  

These figures are subject to various qualifications and assumptions, as detailed in the ICLR forms relating to each bank which can also be found on the blog referred to above.
The figures for each individual bank are rounded to two decimal points.

On the LSE Conduct Costs Project
The LSE Conduct Costs Project is led by Professor Roger McCormick, director of LSE’s Sustainable Finance Project and a visiting professor in LSE’s Department of Law. He is the author of Legal Risk in the Financial Markets (OUP 2010).

The project is in line with what the Financial Services Compensation Panel asked for regarding banks' "regulatory history" when it commented on the FCA's "transparency" paper (DP 13/1) in April this year. Putting all the numbers together was not easy. As McCormick puts it, "All the data are in the public domain but an awful lot is in very obscure places, cloaked by ambiguous and unhelpful accounting practices. Given that the banks, like other corporates, are supposed to put these details in their sustainability reports, in accordance with the Global Reporting Initiative, there really is no excuse."

If the banks really want to be more open and transparent, McCormick's project offers an opportunity for them to support their fine words with concrete action - by being more forthcoming in disclosing and presenting material of this kind. The project, through its encouragement of better, more accessible information, also helps promote the competition amongst banks that policy-makers continually call for.

Professor McCormick intends that the project should now continue on a rolling five year basis. There is just one snag: "What we have achieved so far has been done on a shoestring budget (supported by the Higher Education Innovation Fund) with dedicated and enthusiastic researchers and a great deal of unpaid work. If we are to expand the project as we would like, we will need a comprehensive funding package for the next phase."

28 November 2013

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