Stage 7 Expanded Reading
In this stage you are expected to broaden your horizon into the topic of this lecture.Please read the following article carefully.
Are Financial Penalties Enough to Deter Banks’ Bad Behavior?
Wednesday’s news that the parent organizations of five of the world’s biggest banks will plead guilty to rigging global currency markets rattled the financial markets.But it also raised concerns about whether fines and settlements are effective deterrents to fraudulent behavior.
The five banks will pay the U.S.Justice Department and the Federal Reserve fines totaling $5.6 billion as they agreed to plead guilty to colluding to manipulate currency and interest rate markets.Yet,they could continue to do business as usual,thanks to settlement terms and waivers against stiffer actions from the Justice Department and the Securities and Exchange Commission(SEC).“For the banks,though,life as a felon is likely to carry more symbolic shame than practical problems,”a New York Times article noted,explaining that the banks secured exemptions,waivers and settlements from regulators to conduct business as usual.
“People sometimes misunderstand how the law deters,”said Philip Nichols,Wharton professor of legal studies and business ethics.“In this case,the amounts that the banks were fined are trivial.The total fines,imposed for many years of criminal acts,represent one tenth of a percent of the daily volume of the forex market.”
“The senior bankers have obviously decided that it is in their financial interest to repeatedly violate the law,”said William K.Black,professor of law and economics at the University of Missouri-Kansas City.He noted that at UBS,the latest case is the third act of rigging it has confessed to in the last five years.“The only thing that could save UBS is to have a crackdown by somebody external that gets rid of this assorted group of managers.”
The investigations revealed that way back to the years between 2007 and 2013,four banks or“The Cartel”— Citigroup,JPMorgan Chase,Barclays and Royal Bank of Scotland—colluded to rig euro and dollar markets.UBS,the fifth bank,was accused of manipulating foreign currency markets.Although no original charges were bought down on UBS under that accusation,it drove the Justice Department to withdraw an earlier non-prosecution agreement relating to UBS rigging the London Interbank Offered Rate(LIBOR)market.
Here is a snapshot of what the four banks detailed in their plea agreements,according to a U.S.Justice Department press release:“Members of ‘The Cartel’ manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators.By agreeing not to buy or sell at certain times,the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.”
Here is how the fines add up to $5.6 billion:The banks will pay $2.5 billion in criminal penalties for manipulating currency rates,plus another $1.6 billion in fines payable to the Federal Reserve.The remainder will come from penalties of $1.3 billion that Barclays will pay U.S.and British regulators and $203 million that UBS will pay for manipulating interest rates.
The whiff of big money is a factor to think about for regulators,said Nichols.He noted that the amount of money that moves through the foreign exchange market in one day is almost twice the value of the economic output of the U.K.in one year.“The temptation to dip into that money must be extraordinary,”he said.“We should not regulate banks in the same way that we regulate manufacturing; the extraordinary temptations for misconduct must be recognized.”
“What the law does in this case is strongly signal that this behavior is not at all acceptable,”Nichols added.“Often,that kind of a signal is accompanied by enough social disapprobation to effect a change in behavior.”
Here,Black faulted the practice of U.S.regulators protecting bankers from winding up in jail.Errant banks facing imminent action“negotiate in advance that a guilty plea will not be what a guilty plea would normally be,”he pointed out.The right to pursue a banking business is“a privilege,”he noted.“It is a privilege that is supposed to be limited to honest bankers.”
According to Nichols,banks that want special treatment“because they provide an invaluable public service”must staff themselves with people who will actually provide that service.“If banks want special treatment,then hold them to special standards,”he said.“If they do not want to be held to higher standards,then perhaps they should be treated like everyone else.”
Black felt that stronger action was warranted in the case of UBS.“[UBS] most assuredly should have long ago been banned for some years from doing banking in the U.S.,”he noted.Regulators should also have insisted that UBS clean up its top management and ensure it will not create further violations,he added.
Black took issue also with banks securing waivers against stern action.“The rule with large banks is that the SEC always waives—it doesn’t matter how bad [the violations are],”he said.“This is a serial recidivism.”He noted that one SEC commissioner is working to prevent routine waivers that the SEC grants.
Black suggested one remedy would be“putting a fraudulently controlled bank through receivership,”or placing it under the control of a custodial entity.“Do it on a Friday and it reopens on Monday.It is in private-sector hands,but you have cleaned the sty of the fraudulent managers.”He noted that the industry has an adequate supply of honest bank managers who are unemployed because of the consolidation in the industry.
Nichols found some merit in the suggestion of putting errant banks in receivership.“It obviates the claim sometimes made by banks that they have to continue operating because only they can keep economic transactions moving,”he said.“It also resolves the tension between the claim that banks provide a public good in the form of providing liquid capital—which they do—and the claim that banks must serve their shareholders.”
However,receivership should probably be an option only for banks that seem irredeemable,and it might make more sense for most banks to just create a better internal culture,Nichols noted.Another remedy worth considering is to break up“repeatedly malfeasant banks”into smaller units and holding individuals accountable for poor decisions and for misconduct,he added.
“Banking is an industry that cries out for a competitor that can offer honest services,”said Nichols,adding that market forces cannot be a substitute for regulation and monitoring.“The emails coming out of some of these banks are ghastly—they describe clients in the most demeaning terms and talk openly about how wonderful it is to steal from them and to defraud them,”he noted.“If you ain’t cheating,you ain’t trying,”one trader at Barclays wrote in an online chat room where prosecutors say the price-fixing scheme was hatched,according to the New York Times report cited earlier.
Nichols compared banking regulations with the Foreign Corrupt Practices Act,pointing out that unlike with bribers,bankers do not face the risk of imprisonment.“Since 2008,virtually no individual associated with bank misbehavior has faced prosecution,”he said.He argued that if—as prosecutors sometimes claim—the laws are difficult to enforce as written,then changing those laws might help.
“The material rewards for violating the rules and the trust of clients are huge,while the risk is almost nonexistent,”Nichols noted.“While the fines imposed on banks are trivial…sending people to jail might change the way that people in positions to make decisions make those decisions.”He clarified that some banks have recently fired people that engage in misfeasance,“but those persons have rarely suffered financially.”
“The real problem…is the culture inside the banks,”according to Nichols.“Somehow,within these venerated banks it has become a matter of pride among some people to cheat clients,to break rules and to lie,and money is the scorecard by which this behavior is measured.”
Black recalled the saying:“Fish rot from the head.”He noted that a bank’s CEO and chairman of the board create the strategic plan and the compensation system.“The reason you see recurrent fraud is because they created compensation systems that make people wealthy if they cheat,”he said.
Nichols cited a recent New York Times article to assert that the banks’ culture has not changed since the financial collapse of 2008.“We seem to be very skittish about doing anything that might cause a little pain to our economy today,but our forbearance risks calamity in the future,”he noted.
“Something needs to be done about the culture.Although banks are the least trusted institutions in the United States,most people who work in banks are good and honest people,”he added.“It seems that a minority of people within banks contribute to the poor culture.”
(Source:Adapted from“Are Financial Penalties Enough to Deter Banks’ Bad Behavior?”on http://knowledge.wharton.upenn.edu)
Task 1:Reading Comprehension Questions
The following questions are asked based on the above article.Please go back to the article and find the answers.
1.Who are the five big banks that are fined by the US Department of Justice and the Federal Reserve?
2.Why can fined banks continue to do business as usual?
3.How many times has UBS rigged the forex market over the past five years?
4.How do traders protect each other’s trading positions in a currency market manipulation?
5.What is the structure of the fines imposed on the five big banks?
6.Why are unlawful bankers able to get away from imprisonment?
7.What did William K.Black propose to handle errant banks more stringently?
8.What did Philip Nichols suggest to do in order to put unlawful bakers in jail?
9.Why do those big banks cheat their clients?
10.What is the fundamental solution to financial malpractices?
Task 2:Paraphrasing
Explain in English the underlined words and expressions in the context of the above article.
1.Wednesday’s news that the parent organizations of five of the world’s biggest banks will plead guilty to rigging global currency markets rattled the financial markets.
2.“For the banks,though,life as a felon is likely to carry more symbolic shame than practical problems,”a New York Times article noted,explaining that the banks secured exemptions,waivers and settlements from regulators to conduct business as usual.
3.The only thing that could save UBS is to have a crackdown by somebody external that gets rid of this assorted group of managers.
4.Members of“The Cartel”manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators.
5.The whiff of big money is a factor to think about for regulators.
6.Black faulted the practice of U.S.regulators protecting bankers from winding up in jail.
7.Black took issue with banks securing waivers against stern action.
8.Another remedy worth considering is to break up“repeatedly malfeasant banks”into smaller units and holding individuals accountable for poor decisions and for misconduct.
9.Black recalled the saying:“Fish rot from the head.”.
10.We seem to be very skittish about doing anything that might cause a little pain to our economy today,but our forbearance risks calamity in the future.
Task 3:Translation
Read the article again and translate it into Chinese.
阅读文章参考译文：
罚款就能吓退银行的不端行为？
周三报道称，全球五大银行的母公司将对操纵国际货币市场的罪行供认不讳，这让整个金融市场陷入慌乱。然而，处以罚金和签订和解协议能否有效地遏制这种欺诈行为，也引起了人们的关注。
由于这五家银行已经承认了合谋操纵货币及利率市场的指控，他们将向美国司法部和美联储缴纳总共56亿美元的罚金。但根据与司法部和美国证券交易委员会达成的和解协议和豁免条款，他们可免受更严厉的惩措，仍然可以照常经营。“对这些银行来说，被判重罪带来的可能更多的是颜面受损，而非实际问题。”《纽约时报》的一篇文章解释说，这些银行由于获得了监管机构的免责和豁免，并且签订了和解协议，因此得以照常营业。
“人们有时会弄不清法律是如何制裁的，”沃顿商学院法学和商业道德专业教授菲利普·尼克斯说道，“在此案例中，银行缴纳的罚金微不足道。这些银行因多年来的犯罪行为被处罚的罚金总额，只相当于外汇交易市场每日交易额的千分之一。”
“显然在资深银行家们看来，屡次触犯法律符合他们的经济利益，”密苏里大学堪萨斯分校法律和经济学教授威廉·K.布莱克说道，本次案件是瑞士联合银行在近五年内第三次被指控操纵汇率市场。“拯救瑞银的唯一办法，就是让它接受外部人员的制裁，以消除这类管理人员的影响。”
调查显示，早在2007至2013年期间，由花旗银行、摩根大通、巴克莱银行和苏格兰皇家银行组成的四家银行，或称“卡特尔”集团，串通勾结，联合操纵欧元和美元市场。而第五家涉案银行瑞银，也被指控操纵外汇市场。虽然瑞银起初并未由于该指控受罚，但是司法部因其被指控操纵伦敦银行间同业拆借利率（Libor），最终还是撤消了之前的不起诉协议。
根据美国司法部发布的新闻，四大银行在认罪协议中陈述道：“卡特尔集团成员一致隐瞒欧元或美元的报价，从而避免汇率出现与同谋者所持仓位不利的方向波动，以此操纵欧元与美元之间的汇率。这些银行通过约定在某一时间不进行买卖，并通过掌控外汇供需关系，抑制外汇市场竞争，从而保护彼此的交易仓位。”
本案中56亿美元的总罚款，包括各银行的汇率操纵罚款25亿美元和应向美联储支付的罚金16亿美元。余下的包括巴克莱银行应向美国和英国监管机构缴纳的13亿美元罚款和瑞士银行为操纵利率支付的罚款2.03亿美元。
尼克斯表示，一丝重金的味道引发了监管者的注意。他指出，外汇市场每天流动的资金几乎是英国全年经济产值的两倍。“从这笔巨款中捞点好处的诱惑非同小可，”他说，“监管银行与监管制造业的方式应有所区别，我们必须要认识到这种不当行为的巨大诱惑。”
“在本案中，法律起到的作用是发出一个强烈的信号，告诫银行这种行为是完全不会被接受的，”尼克斯补充道，“这种信号往往伴随着社会舆论的强烈谴责，以此影响银行去改变他们的不正当行为。”
布莱克批评美国监管机构保护涉案银行人员，使其免于牢狱之灾。违法银行面临的处罚迫在眉睫，但他们“提前协商，以至于认罪完全没有认罪本应有的样子”，他指出。从事银行业应该是一项“特权”，他说，“只有诚实的银行家才应该享有这项特权。”
尼克斯认为，银行想拥有特殊的待遇“是因为他们提供了宝贵的公共服务，”既然如此，他们就应该雇用真正能够为人们提供这种服务的员工。“如果银行想要享有特殊待遇，就必须遵守特殊标准。”他说道，“假如他们不愿意遵循更高的标准，他们就应和其他人待遇一样。”
布莱克认为，在本案中应该对瑞银采取更为强硬的措施。“可以肯定的是，瑞银本该在多年前就被禁止在美国从事银行业务，”他指出。监管部门本应强制瑞银厘清其高层管理人员，并保证不再触犯法律，他补充道。
布莱克对银行免受严厉制裁也表示了不满。“大型银行总是得到证交会的豁免似乎已成规则——无论其违法行为多么严重，”他说，“这种情况屡次发生。”他指出，证交会有一名委员正努力打破这一贯的豁免规则。
布莱克提出了一条补救措施，那就是“对舞弊银行进行接管”，或者交给监管单位代为管理。“周五开始实行，下周一就能重新开业。它虽然掌管在私营部门手中，但是这样就清理了那些行为不端的管理人员留下的烂摊子。”他指出，银行业中不乏诚实的银行管理人员，但他们往往因为业界银行的整合而失业。
尼克斯发现，对违法银行进行接管有可取之处。“银行有时声称只有他们才能保证经济交易正常运行，而破产接管可以避免银行以此为由继续营业。”他说，“这也解决了银行以提供流动资本的方式服务大众——这一点他们确实做到了——与银行必须为他们的股东谋利之间的矛盾。”
然而，接管制度只适用于那些无可救药的银行。对于大多数银行来说，改善银行内部文化或许更有意义，尼克斯指出。还有一个值得考虑的补救措施，就是把那些“屡次违法的银行”拆分成小单位，将不良决策和不善管理的责任落实到个体，他补充道。
“银行业迫切需要能够提供诚信服务的竞争对手，”尼克斯说。他还补充说市场力量不能取代法规和监管。“从某些银行流出的电子邮件内容令人咋舌——他们极力贬低客户，而且公开谈论如何窃取和诈骗客户的钱财，并以此为乐，”他指出。《纽约时报》早先引用了这样一个事例，巴克莱银行一位交易员在网络聊天室曾说：“如果你不作弊，那就说明你不够努力。”检方称，价格操控阴谋也正是在这个聊天室策划的。
尼克斯把银行监管制度和《反海外腐败法》进行对比指出，与行贿者不一样的是，银行家不会面临坐牢的风险。“实际上自2008年起，几乎没有任何牵涉到银行违规案的个人被起诉。”他认为如果现行法律条文确实如检方声称的那样难以实施，那么修订法律或许会有所改善。
“触犯法律和辜负客户信任给这些银行带来的物质回报是巨大的，而所面临的风险几乎为零，”尼克斯说，“鉴于银行缴纳的罚金微不足道，把决策者送进监狱或许会改变他们的决策方式。”他解释说，近来有些银行已经开除了渎职人员，“但这些人几乎没有任何经济损失。”
“真正的问题在于银行内部的企业文化，”尼克斯说，“但不知何故，在这些受人尊敬的银行里有些人以欺骗客户、触犯法规和不讲诚信为荣，而金钱则成为衡量这些行为的记分卡。”
尼克斯想起了一句谚语：“上梁不正下梁歪。”他指出，银行的首席执行官和董事长是战略规划和薪酬制度的制定者。“欺诈行为之所以屡杜不绝，是因为他们制定的薪酬体系使人通过欺诈而获得财富。”
尼克斯援引了《纽约时报》最近的文章，断言银行文化自2008年金融危机以来寸步未变。“如今，我们似乎对任何可能稍使经济不利的行为都忧心忡忡，但我们对于现状的宽容可能会给未来造成灾难，”他指出。“银行文化期待改变。虽然银行在美国是最不被信任的机构，但在银行里工作的大多数人都是善良诚实的，”他补充道。“看来是银行里一小撮人败坏了整个银行的文化。”