Six massive international banks have been charged with manipulating foreign exchange rates, and whilst it seems like a world away, it is something you should care about.
This is a scandal that affects everyone: big banks getting together and throwing their considerable weight around the market to set the value of the US dollar and Euro to their advantage. And whilst it might seem like a world away when international banks “cartel” together, have you stopped to consider what it might mean for your hip pocket and your investments?
After all, it’s not as if the banks were exploiting a loophole or using slightly dubious tactics – they were knowingly breaking the law.
“If you ain’t cheating, you ain’t trying,” are the words of a trader from one of the banks found guilty of fiddling with foreign exchange rates to boost profits.
These traders from a wide range of banks created online chat rooms called “the cartel” and “the mafia”. Maybe they thought it was funny. Fortunately, the US Justice Department did not.
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Six banks were yesterday charges USD$6 billion collectively for manipulating foreign exchange rates. Barclays Bank was hit with the biggest fine (USD$2.38 billion), along with Citigroup (USD$1.27 billion), JPMorgan Chase ($892 million) and Royal Bank of Scotland ($669 million), UBS ($545 million) abd Bank of America ($205 million).
US attorney-general Loretta Lynch said, as reported by the ABC, “They acted as partners – rather than competitors – in an effort to push the exchange rate in directions favourable to their banks but detrimental to many others, and their actions inflated the banks’ profits while harming countless consumers, investors and institutions around the globe.”
As Aussies who love to travel to America and Europe, there’s no way of knowing whether our hard-earned dollars were subjected to inflated exchange rates. Quite frankly, the banks don’t really care how far your $1000 travel budget goes overseas, their eyes are on a bigger prize.
In the largely unregulated foreign exchange market around $5 trillion changes hands each day.
But despite the seemingly enormous numbers, the fines are little more than a slap on the wrist for the “naughty banks”
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As the New York Times explains, “Although they could be barred by American regulators from certain activities, the banks scrambled behind the scenes to persuade those regulators to grant exemptions. That process, which delayed the Justice Department’s announcement by a week, already led to the Securities and Exchange Commission providing a number of waivers that allow the banks to conduct business as usual.
This yet another blow to the trust-fund we hold for financial institutions, leaving many wondering where to turn next. After the Commonwealth Bank financial advisors scandal, the collapse of Storm Financial and recent news even celebrities like Peter Phelps have lost $400,000 at the hands of incapable financial advisors, it leaves us to wonder where our money is safe. Maybe it’s time to start stuffing the mattress again?
Tell us: who do feel you can trust with your money? Does this latest scandal further erode your faith in banks?