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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.

Ever been to a dog track?

Ash, England

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?
Ash, England

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..?
Alex C, Australia

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.
Tim Renfro, USA

Auditors ought to be appointed by the state and be responsible to the state

Charles, Scotland
Enron, AIB, Maxwell et al demonstrate one thing: It is nonsense for the audit process to be governed by the market. Auditors are meant to police corporations but in the current system if a company doesn't like the way it is being audited it can appoint another auditor. No wonder they let them get away with murder. Auditors ought to be appointed by the state and be responsible to the state. That would put an end to all these scandals.
Charles, Scotland

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.
Richard Kelly, USA

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.
Vic Price, Scotland

The only people who should be trusted with finances are the Germans

Derek, ex-pat, Brazil
In terms of Europe, the only people who should be trusted with finances are the Germans. The main reason being that Deutsche Bank bailed out investors to the tune of $4bn when a corrupt British manager did a Nick Leeson at Morgan Grenfell. I didn't see Greenbaum and or Bush offering any help for the poor souls who lost their dosh with Enron and the British government offered no help to the punters who lost likewise at BICC; just a few examples, we all know there are many others.
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?
2. It's something of an over-reaction to say "can we ever trust financial institutions again?" Depositors at registered banks are fully insured. So by "we" you can only mean shareholders, who are not insured.
Ben B, England

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!
Andy, UK

I lost confidence in financial institutions several years ago

Phil T, Oman
I lost confidence in financial institutions several years ago, after I had invested several thousands of pounds in a trust fund, sold to me by a friend, which returned less than I had paid in after spending several years in the fund. Around the same time I was sold another scheme, an endowment-type policy, which I shouldn't have been sold (I was not legally eligible to have one). This also lost me money.
Phil T, Oman

Whoever trusted them in the first place?
Chris, Australia

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?
S.G., Canada

What you are seeing now is the direct result of Wall Street rewarding companies with ridiculous growth curves

Martyn, London, UK
Where there's money there's greed. There will always be someone somewhere with a strong motive to bend or defraud the system. In growth years it's easier to hide dubious accounting. As the recession hit, cash started to become harder to find, accountants needed to be more creative with less and frauds couldn't stay hidden. What you are seeing now is the direct result of Wall Street rewarding companies with ridiculous growth curves. They are by their very nature unsustainable and high risk.
Martyn, London, UK

I'm just a poor working girl with no money to invest, so I don't have to worry about it.
Gwen, USA

Hopefully companies will start to realise that they need to provide a quality service, instead of just taking customers for granted.
Andy Brown, UK

A decade of prosperity has lulled us into complacency

Tom Byrne, USA
We are victims of our own apathy. A decade of prosperity has lulled us into complacency and dulled our normally healthy sense of wariness. Every now and then we need a shocking collapse like Enron, if only to remind us of the laws of the stock market. Perhaps now people will be a little more careful with their money.
Tom Byrne, USA

Even in the aftermath of Enron, we still can trust the financial institutions

Purna Maharjan, US
The failure of Enron made us pessimistic about investing in a company through any financial organisation. However, in fact, the economic stimulation can be generated through the financial institution. Even in the aftermath of Enron, we still can trust the financial institutions to invest our money in the market to generate interest.
Purna Maharjan, US

Capitalism is built upon one of the nastier vices of humanity. Namely greed. Nothing surprises me in the financial world anymore.
Tony H, England

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.
Faye, USA

I don't trust them any less

David, UK
Put it this way, I don't trust them any less. You just have to be cautious who you invest your money with.
David, UK

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.
Antony, UK

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.
Vince O'Hara, London, UK

Could we ever trust financial institutions? They operate in their own best interests not their customers.
Richard Hills, Canada

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.
Adam, UK

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.
Will Faulkner, Cheshire, UK

I'd rather put my trust in a huge financial institution rather then leave my money under the mattress

David Todd, Manchester, UK
In response to the comments of Will Faulkner: Are you really that paranoid? Human error is apparent in all institutions - from banking to healthcare. Does this mean that we should have no trust in the doctors who heal us, the restaurants that feed us and the lawyers who overcharge us? I'd rather put my trust in a huge financial institution rather then leave my money under the mattress.
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.
Robert Thomas, US

Banks expect you to trust them with your money, yet they don't trust you not to steal their cheap ballpoint pens

John B, UK
I still trust banks more than I trust the government. At least they came clean about it rather than initiating endless attempts at cover-ups so common from government. One interesting point regarding high street banks is that they expect you to trust them absolutely with your money and personal information, yet they don't trust you not to steal their cheap ballpoint pens.
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.
Richard, London, UK

It really demonstrates nothing else other than the lack of government scrutiny over large corporate and banking institutions

Robert Morpheal, Canada
What the financial disasters of late have shown is that there is a lack of good government. It really demonstrates nothing else other than the lack of government scrutiny over large corporate and banking institutions. Where the activity is international it requires the scrutiny of more than one government and the failure of an international corporate body, where that involves fiscal improprieties, is the failure of every government, of any nation where that corporate body conducts business, to scrutinise corporate fiscal civilities adequately to safeguard public confidence.
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.
Terry F, UK

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.
Robert del Valle, USA

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.
Christine, UK

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.
Robert Crisp, UK

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.
Mac, Scotland

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

Paul B, UK: So you pay yourself interest, do you? How do you manage that then?
Simon Moore, UK

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.
Paul, England

See also:

07 Feb 02 | Business
Crisis meeting over $750m bank fraud
07 Feb 02 | Business
FBI quiz $750m rogue trader
10 Jan 02 | Business
Q&A: Enron's plight
06 Feb 02 | Business
Rogue traders of our time
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