Bad Banks

It is not surprising that claims are beginning to be made in the press that the banks have behaved rapaciously and immorally. The latest allegations is that RBS, a bank now mainly owned by the taxpayer, has squeezed some assets from some of its borrowers and put the borrower into liquidation in order to acquire the asset for a fraction of its real value.

Of course it is easy to make such claims when any business fails. It is easy to blame someone else, but in the present cases there seems to be substance in the claims and it reveals a pattern of behaviour by banks that I have noticed in the course of my recent professional practice.

It is though taking the cream is not enough for these lending institutions; they want to devour the whole milk and also swallow up the bottle in which the milk is contained. The phrase used to describe this is “purposefully distressing a business”.

The UK’s business secretary is Mr Cable, who knows a bit about bad banking, has been quoted as saying

“We want to be absolutely clear that this kind of thing is not going on today. I am, however, confident that the new management of RBS is aware of this history and is determined to turn RBS into a bank that will support the growth of small and medium-sized businesses.”

I do not share his confidence. In the cases with which I am concerned banks have fought tooth and nail to avoid the consequences of being caught stealing their customers’ assets. I accept that there has been bad behaviour and that such bad behaviour by banks is significantly less prevalent today than it was five or six years ago. However, when a bank has been found out for this (which is tantamount to stealing its customers’ assets) the way in which the bank reacts to having its bad behaviour exposed tells us whether in fact the banks have changed their evil ways.

The pattern that emerges is that banks sell customers swaps which are entirely inappropriate, and then use the distress that the swap creates in order to benefit themselves further. So far there is no evidence that the banks will wish to restore their ill gotten gains from those from whom it took them.

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