Authorities in the US and EU have forced the world’s 50 largest banks to pay up $342bn since 2009, according to analysis by consultants Quinlan and Associates.
Banks have faced heavy sanctions since global markets collapsed, although in June ratings agency S&P reported 2016 may have been the last year for “outsized” fines for the UK’s big four banks – Barclays, HSBC, Lloyds and RBS.
Regulatory scrutiny of the world’s biggest banks has increased dramatically since the global financial crisis, when lax, laissez-faire regulation was blamed as one factor allowing risks to build up in international financial markets.
Since then a host of national and supranational regulatory regimes have been introduced, including the US Dodd Frank Act, requirements for banks to ring-fence capital, and the Basel III requirements for banks, aimed at shoring up their capital and lowering liquidity risks.
Meanwhile in the UK, big fines and compensation handouts have been paid by banks who missold payment protection insurance. Fines for the manipulation of the London Interbank Offered Rate (Libor), have reaped at least $40bn.
US regulators have led the way in fining banks, with $73bn in fines relating to risky mortgage-backed securities (MBS) alone. MBS markets played a crucial role in the financial crisis when defaults on the underlying assets started to rise. Royal Bank of Scotland was one of the latest to pay a fine, when it coughed up $5.5bn in July to the Federal Housing Finance Agency – although that was lower than the $7.2bn penalty paid by Deutsche Bank.
Hong Kong-based Quinlan and Associates’ estimates show the risky culture before the crash has had a massive effect on profits in the last decade: the top 50 global banks have lost $850bn in potential profits since the financial crisis in trading losses, fines, and increased compliance costs, the report finds.
That figure rises to over $1 trillion, the report estimates, if indirect effects are also taken into account, such as increased funding costs and reputational damage.