Since the 2008 financial crisis, banks have been fined over $321 billion for misleading investors. Deutsche Bank, HSBC, and JP Morgan lead the herd with the most fines.
he world's leading banks have been fined $321 billion since the 2008 financial crisis. According to a study by the Boston Consulting Group, banks in the USA have been fined the most.
Researchers estimate the total amount to be over $400 billion in 2020. Could blockchain have potentially saved $400 billion in fraud and fines? And could blockchain have prevented the financial crisis?
Since the crisis, banks have brought in over $1 trillion and have been fined around $321 billion related to the crisis. Although the banks have been somewhat fined heavily, the FDIC (Federal Deposit Insurance Corporation) reported that banks made a record profit of $171.3 billion in 2016 with $45.6 billion in the third quarter.
Publicly traded financial giant J.P. Morgan Chase has been fined a total of almost $30 billion since the early 2000s.
With 99 recorded offences, they include banking violations, anti-money laundering deficiencies, mortgage abuses, securities abuses, market manipulations, consumer protection violations, and many more.
The biggest fine was J.P. Morgan received was in November 2013 with the amount of $13 billion. J.P. Morgan admitted to misrepresentation to the public on "toxic mortgages," and misleading investors on the quality of securities.
They were heavily involved in selling subprime mortgage securities to investors, it practically caused the crisis. $9 billion of the fine was used to settle with DOJ (Department of Justice) and $4 billion was used to provide aid for underwater home owners and potential home buyers.
“Abuses in the mortgage-backed securities industry helped turn a crisis in the housing market into an international financial crisis".
Said U.S. Attorney for the Eastern District of California Benjamin Wagner.
“The impacts were staggering. J.P. Morgan sold securities knowing that many of the loans backing those certificates were toxic."
Another $6 billion was fined for 15 counts of banking violations and anti-money laundering deficiencies. American Banks were not the only culprits leading up to the 2008 crisis.German multinational investment bank, Deutsche Bank AG, also did its fair share - 32 recorded offences and $13 billion in fines.
In 2017, Deutcshe Bank and Swiss Bank Credit Suisse paid a combined fine of $12.5 billion to the DOJ for toxic securities abuses leading up to the crash. HSBC Holdings paid $1.9 billion in fines in 2012 for Anti-Money Laundering Violations.
UBS, Investment banking company, was also fined $1.5 billion for manipulating inter-bank lending rates. It does not come as a surprise that the biggest offender of bank violations is nonetheless Bank of America.
This American investment bank and racked up $60 billion in fines and a record breaking 119 offences since 2000. The three largest fines on the bank's long rap sheet is an $8.5 billion settlement in 2008, $11.8 billion in 2011, and $16.6 billion in 2014 for mortgage abuses and frauds.
The $16.6 billion settlement is "the largest civil settlement with a single entity in history," according to Attorney General Eric from the Department of Justice. “This historic resolution - the largest such settlement on record - goes far beyond ‘the cost of doing business,’” said Attorney General Holder.
"Under the terms of this settlement, the bank has agreed to pay $7 billion in relief to struggling homeowners, borrowers and communities affected by the bank’s conduct. This is appropriate given the size and scope of the wrongdoing at issue.”
In an IBM blog post in 2017, author Ross Mauri explained three features that blockchain provide to prevent fraud. Blockchain records every single transaction on a ledger that cannot be altered or deleted. It is given a timestamp and is secured through the cryptography.
It is build to protect transactions and its assets from where it originated to all the areas it has been. This can prevent all types of market manipulation including foreign exchange manipulation, energy market manipulation, and interest rate benchmark manipulation.
Because Blockchain technology is a "peer to peer" network, it is impossible for malicious fraud to conspire. It requires authorization from different parties spread across the entire network.
A person or institution cannot change and create fraudulent files stored on Blockchain. There is no central administrator so there is no single point of failure. History of transactions is also available to the public.
Blockchain is also designed to protect confidential data as well. It protects in a way that isn't accessible to anyone. Outsiders cannot access it, and insiders cannot change or delete it. Permission networks are best when it comes to fraud prevention.
Aside from preventing fraud and market manipulations, blockchain could also aid in bank heists. In February 2016, a central bank was hacked and $81 million was stolen.
Using the Society for Worldwide Interbank Financial Telecommunications’ (SWIFT’s) messaging service, the hackers sent authenticated messages from the Bangladesh central bank to the New York Federal Reserve Bank.
Most of the money still has not been recovered. According to American Express:
"If the central banks involved in the Bangladesh bank heist had been using blockchain, the money might still have been stolen but it would be easier to trace and, therefore, recover."
The transparency of this technology could also prevent individuals from committing wire fraud and money laundering through banks. It is hard to speculate if Blockchain could have completely averted the 2008 international financial crisis that left the world in turmoil.
But the technology could have definitely prevented the multi billion mortgage fraud imposed by the mega banks of the world that destroyed the lives of millions of consumers.