We are all being burnt by risk-taking banks
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Barclays Bank seems to have gotten into double trouble, this time over the Libor interest rate-fixing scandal and payments to Qatar investors during the financial crisis.
Comments have surfaced suggesting that its new CEO go back to basics and hive off its investment banking arm.
“Back to basics” was the rallying cry that immediately followed the 2008 financial crisis. Four years later, one would expect more progress and not to have to go back to basics again.
Can we just shrug off the moral directive as just another opinion, or is it a sign that things just aren’t right again?
It has been observed that the markets are fundamentally not strong and the European debt crisis is finally eating its way into valuations.
Over in the United States, Fed chairman Ben Bernanke indicated at the recent meeting of central bankers in Jackson Hole that he was prepared to take action to prop up the still ailing US economy.
As a result, many are predicting a third round of quantitative easing (money printing) by year-end.
Looking at some of these, among other factors, makes one think that it may be better to err on the side of caution than take on risky bids. In the wake of lessons learnt during the financial crisis, banks should heed early warning signals and start preparing for bad times.
It is not enough if just a few banks are turning wise; a collective effort or awakening is required for the full effect to cascade through the system.
The trouble is there are so many risks in the market. Just as in the last financial crisis when banks and others played with risky derivatives, this round seems to involve other high-risk transactions.
These transactions may involve exploiting loopholes which some may think is justified, but their exploits do not always have happy endings.
So far, there have been a few bad cases involving heavy fines. If this carries on and blows up in the downturn, things may get dicey, especially when money is needed for more productive uses.
The nature of financial misdeeds has become very unpredictable these days, with investigators eager to show that they are going to be more alert this time.
It may be difficult to predict what is it that sparks the next crisis, but it will certainly be wise to avoid the places that even angels fear to tread.
