No place to hide for bankers who cheat the public

The Barclays Bank scandal in the UK has posed a new challenge to the authorities about the supervision of banks and financial institutions, which are still perceived as the bloodline of the business sector. 

Many of the commercial banks are still considered as “too big too fail” by the authorities. Thus governments have a tendency to do everything possible to prevent these huge institutions from collapse because, if that happens, many people will be adversely affected, as Thailand witnessed during its own financial meltdown in 1997 and 1998. 

But such state support of private corporations will continue to invite questions from those who believe they are mere victims of a system where the rich enjoy special privileges. The Occupy Wall Street campaign was partly formed out of public anger towards what people describe as the greed and corruption of those in power in business circles.

The scandal at Barclays Bank has heaped even more public outrage upon the banks. Observers and critics are adamant that the bank has used dubious methods for making money at the expense of the public. Barclays is guilty of manipulating the Interbank rate.

American and British authorities recently fined Barclays US$450 million for manipulating the London Interbank Offer Rate (Libor). But the real damage is far greater than the sums of money involved because the reputation of this long-established financial institution has been ruined.

The issue has brought extra pressure on the British government, which promised voters justice in this matter. Many have questioned the efficiency of the regulators, who have let this kind of practice go on for years. 

The scandal is likely to invite more scrutiny of the system. On Friday Bank of England Governor Mervyn King was quoted as saying that something had gone very wrong in an industry that he derided for resorting to “deceitful” methods to make money.

Coincidentally, the Barclays scandal has occurred while Thailand is reflecting on the consequences of the 1997 financial crisis, which was attributed to the malpractice of certain financial institutions and banks.

Fifteen years have passed and, overall, Thai financial institutions have managed to recover from the crisis stronger, thanks to stringent supervision from the authorities.

However, these institutions are not completely free from criticism over their operating culture. One of the most frequently heard criticisms of the banks involves the difference between the lending and borrowing rates. Some believe that the gulf between the two makes it too easy for the banks to profit at the expense of depositors.

In addition, there is also a fresh debate over who should be responsible for banking fees. This is a result of the transfer of the Financial Institutions Development Fund’s liabilities of more than Bt1.14 trillion to the Bank of Thailand. This has raised a question as to what extent the commercial banks will pass on this additional financial burden to customers. 

The challenge is thus how the authorities and the banks will strike a balance to ensure fairness for all stakeholders. Closer supervision is essential to protect every group, but regulatory practices that are too severe could create the wrong atmosphere for the banks to operate with efficiency and competitiveness.

Financial institutions would be foolish indeed if they had the intention to manipulate the market at the expense of the general public at every opportunity. In this era of information technology and an open-market system, it is unlikely that scandals of the Barclays nature can be kept secret for very long. In the case of Barclays, the evidence came to the public’s attention eventually, even though the interest rate rigging occurred from 2005 to 2009.

The incident simply reaffirms the necessity for corporations to carry out the business fairly, with transparency and honesty, when dealing with the public.