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Wednesday, 13 February, 2002, 13:38 GMT
Can we ever trust financial institutions again?
The reputations of companies such as the US subsidiary of Allied Irish Bank and the energy giant, Enron, have been undermined following recent fraud scandals.
Allied Irish Bank has admitted that it lost more than £500m on the foreign exchange markets allegedly due to a single rogue trader.
The increasing computerisation and sophistication of financial markets means that it is easier than ever for financial institutions and individuals to lose huge amounts of money.
In 1995, Singapore-based derivatives trader Nick Leeson ran up £830m ($1.17bn) in losses on unauthorised trades that caused the collapse of the blue-blooded Barings bank.
After the scandal was uncovered, banks reviewed their internal procedures, activities in dealing rooms around the world were tightened up and governments worked to clarify regulations of financial institutions with branches overseas.
Nonetheless, a stream of financial scandals has continued to appear, in the US, UK and Asia.
Do you feel that it is still possible to have confidence in our financial institutions?
This Talking Point has now closed. Read a selection of your comments below.
Investment: You give money to a third party on the off chance that you might get back more than what you gave them.
Ever been to a dog track?
If banks are such wickedly greedy rip-off merchants, how come none of the whingers here have managed to set up their own, more competitive bank to tempt customers away from the big boys? Maybe because it's not all so simple as the "poor me" brigade like to think..?
Why should you have trusted financial institutions before? Doesn't anyone remember the junk bonds of the 80's? Financial institutions can be understood with this one thought. They are a gamble. The only difference is you are handing your money to someone called an investor and not to a card dealer.
The idea of trusting any profit-oriented company, at least in the US, is a howling joke. If you doubt that, reside here for a month or two.
We pay lots of money to investment banks who, we hope will invest wisely, alas judging the wild swings in the market they cannot assess the risks so how can they assess their situation.
Derek, ex-pat, Brazil
1. Enron is not a financial institution. Nor is the accountancy firm that (possibly) failed to spot the problems. But hey, why let that spoil a good headline?
Many city people get ridiculous salaries and bonuses justified by making lots of money when it is only a result of good years. Do they pay it back when people's investments plummet? I don't trust them at all!
Phil T, Oman
Whoever trusted them in the first place?
Financial institutions have one goal, making money. Perhaps the first law was to protect wealth and that law has been implemented and lobbied for hundreds of years. Individuals have no power, as individuals. Is it time to take our money out of these financial institutions, to prevent them gambling in mutual funds?
Martyn, London, UK
I'm just a poor working girl with no money to invest, so I don't have to worry about it.
Hopefully companies will start to realise that they need to provide a quality service, instead of just taking customers for granted.
Tom Byrne, USA
Purna Maharjan, US
Capitalism is built upon one of the nastier vices of humanity. Namely greed. Nothing surprises me in the financial world anymore.
Yes, I can trust my financial institutions. I know for sure that if I am late on my mortgage or car or student loan payment, that they will hunt me down for the money. Banks are pretty predictable that way.
Had John Rusnak or Nick Leeson made money instead of losing it, they'd have been feted as heroes by their company and awarded obscenely large bonuses. Rusnak's greatest crime in the bank's eyes was getting caught. The whole system is corrupt but as long as the money rolls in, the management don't care about fraud.
I never trust financial institutions in the UK. It takes so long for anything to get done in a bank that I am beginning to think their computer systems are actually abacuses. Another example: I can transfer money out of my accounts to wherever via a fax to the bank with no problems but I'm not allowed to change my address via fax. I have to physically go into the bank and sign approximately 200 forms in triplicate.
Could we ever trust financial institutions? They operate in their own best interests not their customers.
There is an endemic problem with large US institutions in that they are prone to launder money and will try every trick in the book to charge customers in order to cover their huge cost base. Banks based in Europe are much better regulated especially after the Barings affair. The next collapse of a bank will be in the US as it has becomes apparent that asset quality has become seriously eroded by lending to firms with dodgy accounting practices.
I have never trusted banks in the first place!
Despite all the computer systems money can buy, the 'human error' factor will always come into play.
The good thing is that UK banks are legally obliged to refund up to £18,000 should they go bust, which is not too far-fetched when you think about the Barings scandal.
David Todd, Manchester, UK
The main issue I have with corporate scandals is the accounting procedures used to ensure accuracy of earning and debt. It's the old question, who is watching the watchers? There will always be crooks running companies and it falls back to the accounting firms to report their findings as they see them. The idea that no one can trust financial institutions is unrealistic as most people invest for education and retirement. The vast majority of companies do report accurate financial statements. This fact should not be lost in all the scandal controversy. The bedrock of democracy is government and corporate transparency. This is the real issue surrounding the issue with Enron and AIB.
John B, UK
Where else can you invest, if not with a big institution? If you're not going to invest with a financial institution you can only really invest in property, and we are being warned against that too. As usual it's the failures who make the news; in my experience most institutions provide a good service because they have the time, skill and resources to provide a good return for their clients. I don't think the "under the mattress" approach would be any better than entrusting one's hard-earned money to a big institution.
Robert Morpheal, Canada
In these days of self-regulation and efficiency drives (i.e. less supervision) it is far easier for individuals to commit such frauds. It is only when such an event occurs (i.e. a crisis) that we question the supposed efficiency measures that we have made. It is true of many industries including the NHS and Railways, only there, the consequences are different.
There is no such thing as an altruistic financial institution. These companies are set up first and foremost to make money for the people who RUN them. Confidence and trust should be fostered by results, not the naivety that TV commercials thrive on. Frankly, I haven't felt easy about the stock market since 1987.
What do you mean "Can we ever trust financial institutions AGAIN?" I for one never trusted them in the first place. They're making money off me. They're not there to be charitable to me. If they were, there would be no interest to pay on my mortgage and credit cards.
All my eggs in one basket? No, thank you. My confidence, or lack of it, can be judged by the way I spread my assets over a number of diverse institutions.
In my poorer youth I had to trust one bank to look after my meagre assets. But would feel very uneasy doing so now.
Sadly the people who suffer most when things go wrong are not the richest members of society. Enron pensioners only have to look at Enron directors to verify that fact.
You only need to look at the government's drive to privatise London Underground to understand that accountants only do the bidding of their paymasters. It shows that independent financial analysis and scrutiny is a very rare commodity in this world.
Who ever trusted financial institutions in the first place? They're all just ways of parting you from your cash and they all rely on arcane methods and language to hide the fact that they aren't doing anything for you that you couldn't do yourself.
Paul B, UK: So you pay yourself interest, do you? How do you manage that then?
The only thing you can trust any financial institution to do is to strike you with every charge and penalty they can, hold on to your money until the bitter end and threaten you if you're even a day out on a payment.
And Simon Moore - on interest rates these days, making 90p every six months isn't worth it for the normal working person.
07 Feb 02 | Business
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Rogue traders of our time
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