The American banking industry has weathered a tumultuous financial outlook over the past decade. From Lehman Brothers colluding with county officials, to Wells Fargo’s fraudulent activities, the extent of the banking system’s corruption is more than a tad concerning. To understand the depth of this issue, let’s take a dive into the shady depths of the US banking industry and investigate the unsettling facts about its recent ethical declines.
1. Corruption Runs Deep in U.S. Banking
Recent scandals, investigations and fines that have come down from the highest echelons of U.S. banking make it crystal clear: corruption runs deep at the heart of these massive institutions. The list of offenses is long, but some of the more egregious examples are worth mentioning:
- The LIBOR-fixing scandal, whereby banks were found to be manipulating the core rate that affects global finance
- Enron-era energy-price manipulation, resulting in increased profits for big banks
- Large US banks helping people evade taxes by anonymously opening offshore accounts in tax havens
- Regularly misleading shareholders with false information and outright lies
Then there’s the issue of banks attempting to undermine financial regulations. Shortly after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, investigations revealed that several banks were actively working to weaken the legislation, so that they could continue to engage in practices that increase their profits but are detrimental to the underlying economy. Furthermore, these most recent investigations have revealed that banks have been attempting to engage in arms deals with terrorists and rogue states, in total violation of current US sanctions.
2. Uncovering the Deceptive Practices of Big Banks
Big banks frequently employ tactics under the radar when it comes to their customers’ finances. From hidden and complex fees to confusing lines of fine print, customers are often time left feeling misled or taken advantage of. But it doesn’t have to be this way – here are a few steps to uncover and combat the deceptive practices of big banks:
- Read Reviews and Research Gathered Data – Before setting up a bank account, research the ratings and customer feedback left by previous customers. While this may not guarantee satisfaction, it will help to set expectations.
- Ask Questions Before Opening an Account – Familiarize yourself with the banking institution’s fees, account policies, and types of accounts they provide prior to setting up an account. If there are ever any red flags, or something doesn’t feel right, listening to your intuition is advised and looking elsewhere is recommended.
Big banks exist to make a profit, so it’s important to be proactive and aware of their practices when it comes to handling money. Research your options, ask plenty of questions, and don’t be afraid to walk away if something doesn’t feel right.
3. What Lies Beneath: The Financial Crisis of 2020
A Historical Perspective
The 2020 financial crisis was foreshadowed by a variety of atypical financial patterns that had been seen in the market leading up to the crisis. These inconsistencies, paired with over-borrowing, led to the rise and fall of multiple investors, stock prices, and businesses, culminating in immense losses for many companies and workers.
Experts pointed to overleveraging, bold investments, stock buy-backs, and accounting inaccuracies as the culprits of the crash. Those with knowledge of the financial industry were increasingly concerned by the lack of transparency in some industries and the propagation of debt-based assets. The resulting scenario created high financial risk that could have easily been avoided.
The Domino Effect
The financial crisis created a cascading effect throughout the economy. It began in the stock market, where stock prices dropped rapidly, leading to a sell-off of assets due to sharply decreased investor confidence. From there, it rippled into other industries and decreased market liquidity, which caused businesses to collapse and consumers to struggle to get credit.
The fallout from the crisis encompassed changes in labor market policies, regulations, policy-making, and other areas of social and economic stability. Major consequences included company bankruptcies, evictions, job losses, and extreme fluctuations in oil prices.
- Sell-off of assets due to decreased investor confidence
- Proliferation of debt-based assets
- Company bankruptcies
- Job losses
- Fluctuating oil prices
4. Following the Money Trail: How Banks Run Their Business
Today’s banks are more than just places to save and withdraw money: they’re also businesses in their own right. Understanding how the money trail works can help anyone looking to invest or manage their own finances. Here’s a breakdown of the banking system and its inner workings:
Banking institutions make money by processing transfers, investing in markets, and charging fees on certain services. Banks have to be properly licensed and adhere to certain standards and regulations. Profits are also made by loaning money to borrowers and charging interests on those loans. Banks might also issue bonds and provide services such as online banking and wire transfers.
- Banks create liquidity by taking deposits and providing loans.
- Banks can also participate in the stock market and speculate on the movement of stock prices.
- Banks earn profits from fees charged for their services such as account opening, overdrafts, and wire transfers.
In addition to making money, banks also provide an enormous range of other services to individuals, businesses, and other entities. Businesses and individuals make use of banks for receiving payments, making large transactions, and storing money. Banks can also provide advisory services on investments, insurance, and other related issues. Banks are essential to everyday life, providing the infrastructure for many of our financial transactions.
It seems the banking industry rot runs deep, whether public perception is right or wrong. Regardless, there are a lot of questions yet to be answered, a lot of opinions yet to be voiced, and a lot of paths yet to be taken on this issue. Until then, the future of the banking industry will remain uncertain.