Similar reports were filed for JPMC. Lauren Tara LaCapra and David Henry, “JPMorgan to Spend $4 Billion on Compliance and Risk Controls: WSJ,” Reuters (September 12, 2013), http://www.reuters.com/article/us-usa-jpmorgan-risk-idUSBRE98C00720130913.
2
A key scandal was unearthed in 2016 involving Wells Fargo and retail bank customers. This seems to be something new. A Ponzi scheme was also uncovered at Platinum Partners. This was something old. http://www.nydailynews.com/new-york/nyc-crime/platinum-partners-hedge-fund-bigs-face-charges-1b-fraud-case-article-1.2916343.
3
US Department of Justice, “Deutsche Bank Agrees to pay $7.2 Billion for Misleading Investors in Its Sale of Residential Mortgage-Backed Securities. Deutsche Bank’s Conduct Contributed to the 2008 Financial Crisis” (January 17, 2017), https://www.justice.gov/opa/pr/deutsche-bank-agrees-pay-72-billion-misleading-investors-its-sale-residential-mortgage-backed.
4
Operational risk is the risk that deficiencies in information systems or internal processes, human errors, management failures, or disruptions from external events will result in the reduction, deterioration, or breakdown of services provided by an FMI. http://www.bis.org/cpmi/publ/d00b.htm?&selection=48&scope=CPMI&c=a&base=term.
5
Jerome Kerviel, a French trader, was convicted in the 2008 Societe Generale trading loss for breach of trust, forgery, and unauthorized use of the bank’s computers, resulting in losses valued at €4.9 billion. http://www.businessinsider.com/how-jerome-kerviel-lost-72-billion-2016-5.
6
Roger Lowenstein,
7
LIBOR is a benchmark rate that some of the world’s leading banks charge each other for short-term loans. It stands for London Interbank Offered Rate and facilitates the calculation of interest rates on various loans throughout the world. LIBOR is based on five currencies: US dollar (USD), euro (EUR), pound sterling (GBP), Japanese yen (JPY), and Swiss franc (CHF), and provides seven different maturities of each one: overnight, one week, and 1, 2, 3, 6, and 12 months.
8
G. Elton,
9
According to the first shareowner census undertaken by the New York Stock Exchange (NYSE) in 1952, only 6.5 million Americans owned common stock (about 4.2 percent of the US population). By 1990, the NYSE census revealed that more than 51 million Americans owned stocks – more than 20 percent of the US population.
10
In the 1960s, finance's share of the GDP accounted for less than 5 percent of the US economy's output. By the 2000s, the proportion had risen to over 8 percent, fueled by a combination of middleman fees, for example, in asset management, and the credit explosion fueled by securitization (more of that later). The repeal of Glass‐Steagall enabled large banks to take advantage of these secular trends and bulk up through acquisition to provide services across the whole range of banking services, including retail, wholesale, asset management, treasury services, etc. Banking balance sheets of over $2 trillion came into being in the 2000s.
11
As interim Assistant Secretary of the Treasury for Financial Stability from October 2008 to May 2009, Neel Kashkari oversaw the Troubled Asset Relief Program (TARP) that was a major component of the US government's response to the financial crisis of 2007. Subsequently, as Chief of the Federal Reserve Bank of Minneapolis he has been an outspoken proponent of further reforms to manage risks posed by large banks. His most recent proposals made in November 2016 were covered widely by the press, including the article reference below: http://www.reuters.com/article/us‐usa‐fed‐kashkari‐idUSKBN13B1LD.
12
JP Morgan Chase agreed to pay $1.7 billion as part of a deferred prosecution agreement reached with the US Attorney's office for the Southern District of New York in January 2014 on charges that its failure to maintain an effective anti‐money laundering program helped to facilitate the multi‐billion‐dollar Ponzi scheme orchestrated by Bernard Madoff. The crux of the complaint by federal prosecutors was that the bank maintained the relationship despite internal concerns and red flags. These red flags were actually raised by the London Branch with the UK's Serious Organized Crime Agency but were not shared with the AML Compliance team in the United States. Whether that was because of misplaced concerns over potential noncompliance with data privacy laws in the UK if such client concerns were raised in another country is a troubling possibility. Be that as it may, much work has been done since then, to improve the AML program at JP Morgan Chase, including significant investment in systems and expertise. Information on these charges was reported widely and a good analysis can be found at the link to a DealBook NY Times article: https://dealbook.nytimes.com/2014/01/07/jpmorgan‐settles‐with‐federal‐authorities‐in‐madoff‐case/.
13
A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer (usually the creditor of the reference loan) in the event of a loan default (by the debtor) or other credit event. This is to say that the seller of the CDS insures the buyer against some reference loan defaulting. The buyer of the CDS makes a series of payments (the CDS “fee” or “spread”) to the seller and, in exchange, receives a payoff if the loan defaults. It was invented by Blythe Masters from JP Morgan in 1994. By the end of 2007, the outstanding CDS amount was $62.2 trillion, falling to $26.3 trillion by mid‐year 2010 and reportedly $25.5 trillion in early 2012. CDSs are not traded on an exchange and there is no required reporting of transactions to a government agency.
14
A good overview of the Wells Fargo scandal can be found at a number of sources. One good overview can be found at the Guardian newspaper web site: https://www.theguardian.com/business/us‐money‐blog/2016/oct/07/wellsfargo‐banking‐scandal‐financial‐crisis.
15
In finance,
16
The rule disallowing proprietary trading was credited to former chairman of the Federal Reserve Paul Volcker. In the light of the 2008 Financial Crisis, Mr. Volcker believed that one of the causes of the crisis was the ability of investment banks to deploy the capital of customers in pursuit of speculative and risky trades. The objective of the Volcker Rule then was to prevent such activity in the future.
17
Rochdale Securities was a brokerage firm that went bankrupt in 2012 due to a loss on a single trade that was executed. The failure came since the trade's losses were beyond the capacity of the firm to meet.
18
In 2009, Societe Generale lost over $7 billion due to the activities of trader Jerome Kerviel. This remains the largest‐ever loss resulting from a Rogue Trader. One of the tactics used by Kerviel to avoid detection was to create false counterparties that would then be used to authenticate his nefarious trades.
19
In many ways the original Rogue Trader, Nick Leeson managed to bring down the storied Barings Investment Bank all on his own. In the early 1990s, Leeson was able to take advantage of his role
