Penalizing erring banks

Zoilo ‘Bingo’ Dejaresco IIIBanks have long been the people’s sanctuary of their hard-earned money. That they should represent the epitome of trust is a given. They have, after all, a fiduciary obligation over the customers’ deposits.

That is why regulatory agencies, like our own Bangko Sentral ng Pilipinas (BSP), act more than whip-lashing parents on erring children when it comes to the violation of banking rules by lenders.

In September Time magazine reported that Wells Fargo, once the poster boy of banking prudence, was slapped with a whopping $181  million  (about P9 billion) in fines by American regulators—for what?

For hoodwinking clients in the tens of thousands by opening bank and credit-card accounts without their permission, resulting in an unwarranted fee income of $2.6 million (about close to P100 million).

The penalty of P9 billion given the “dishonest” fee income of P100 million is by no means a slap in the wrist. Even Massachusetts Sen. Elizabeth Warren angrily commented—in exasperation—at the Wells Fargo Senate hearing that “The only way Wall Street will change is if the executives face jail time when they preside over massive frauds.”

It was reported Wells Fargo staff were allegedly forced by management to cross-sell other bank products. And yet in the exposé of the scandal by the Los Angeles Times, only the lowly employees numbering 5,300 were fired and that a golden parachute was given to the outgoing bank officer in charge of community banking.

Could the hard sale “cross selling” not have logically come from the board of directors’ instructions or at least have their tacit approval?

Here at home recently, the BSP (after conducting a special examination) on the Rizal Commercial Banking Corp. (RCBC) involved in the Bangladesh Bank scandal, was fined a record amount of P1 billion by the BSP.

This will be payable in two tranches this year and then in 2017.

The BSP wielded the baton as the regulatory policeman of banks although there is much debate as to whether the record penalty was commensurate to the offense.

Although the penalty hardly makes a dent on the stability of the bank, which earned P5 billion in 2015 alone, it was a bite charged to its equity holdings.

RCBC withstood the backlash as it already made P2.6 billion in the first half and would likely equal its earnings last year.

In fairness, according to the BSP, RCBC has strengthened its  Anti-Money Laundering Act  mechanisms, as well as its counterterrorism financial-risk management systems. It had also accepted the resignation, without charges, of its president and treasurer. But more heads subsequently rolled, according to insiders.

RCBC also swept clean its board and appointed seven, instead of only four, independent directors to strengthen the oversight capability of the policy-making body. Former Citibanker Gil Buenaventura took over as the new CEO.

Observers have complained why only a lowly branch manager solely bore the brunt of the Bangladesh Bank heist aftermath. But be that as it may.

Debacles like this, however, strengthen the system further if the system learns its lessons well.

So far, we have not seen large bank failures in the 2000s, except that of Urban Bank at the turn of the century and the Banco Filipino Savings and Mortgage Bank mess in 2011.

In recent years, only the smaller banks have bellied up. In 2015 only 14 rural banks went under: 10 in Luzon and four  in Mindanao, while the year previous (2014), 13 rural banks and two development banks collapsed.

This was partly because of the exemplary watchdog role of the BSP, which helped make the Philippine banking system one of the strongest in the region.

The BSP remains hawk eyed. They are implementing Basel 3 Reforms to include putting up additional bank capital (aside from meeting the capital adequacy standard of 1.5 percent to 2.5 percent of their risk-weighted assets and increasing the liquidity coverage ratio of risk assets from 60 percent in 2016 graduated to 100 percent by January 1, 2019.

All these are guaranteed to ensure no more big banks collapse in the future to the detriment of depositors and investors.

To ordinary folks and small businesses, it is important to know the banks they deal with.  No one dies from asking more information.

 ****

Bingo Dejaresco, a former banker, is a financial consultant, media practitioner and political strategist. He is a Life Member of Finex, but his views here are personal and do not necessarily reflect those of Finex. 

E-mail him at dejarescobingo@yahoo.com.

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