
Beware the Ides of March
LOSSES & LAWSUITS
Reputational risk meltdowns, rogue traders, market abuse, prostitutes - March has been a record month for operational risk loss events.
It all kicked off with revelations in the US press that New York State governor Eliot Sptizer - a man who has single-handedly done more than anyone to populate the Losses & Lawsuits pages each month - had regularly paid prostitutes from the high-class Emperors Club thousands of dollars. A probe into Spitzer began last autumn when a bank's anti-money laundering monitoring framework picked up the wire transfers from Spitzer's account to shell companies set up by the Emperors Club.
Then, in mid-March, Bear Stearns paid the ultimate price for a reputational risk incident. The collapse of the investment bank - after increasing subprime woes caused a stampede of withdrawals by hedge funds - nearly caused a financial markets meltdown. The bank had to be rescued by JP Morgan Chase, in a weekend deal with the US Federal Reserve. The same market dynamics nearly brought Lehman Brothers to its knees as well, according to several news sources, but firms stepped back from the brink and stopped trading down the stock price.
Instead, the negative momentum moved across the pond to HBOS - quoted on the London Stock Exchange - which saw its stock price fall some 17% in a day. It was the victim of malicious rumours and aggressive short-selling, and the UK Financial Services Authority was forced to step in and make an unprecedented statement supporting the bank. Days later, when the smoke cleared, the share price of the bank surged back to pre-crisis levels.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Printing this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. Copying this content is for the sole use of the Authorised User (named subscriber), as outlined in our terms and conditions - https://www.infopro-insight.com/terms-conditions/insight-subscriptions/
If you would like to purchase additional rights please email info@risk.net
More on Regulation
SEC may lack legal clout to impose new dealer rule – Citadel
Adoption of quantitative dealer definition may require congressional changes to US Securities Exchange Act
US Basel endgame hits clearing with op risk capital charges
Dealers also fret about unlevel playing field compared with requirements in the EU
CFTC’s clearing house recovery rule splits industry
Some fear CCPs will fast-track recovery, others say any rule book will be ignored in emergency
EU banks ‘will play for time’ in stand-off over India’s CCPs
Lawyers say banks are unlikely to set up subsidiaries and will instead pin hopes on revised Emir fix
ECB mulls intervention on uneven banking book reporting
Inconsistency among EU banks on whether deposits and loans are in scope for credit spread risk
Iosco warns of leveraged loan ‘vulnerabilities’
As recovery rates plummet, report calls for clearer covenants and more transparency on addbacks
Narrow path to compromise on EU’s post-Brexit clearing rules
Lawmakers unlikely to support industry demand to delete Emir active accounts proposal altogether
The Fed’s stress test models are inaccurate. Something has to change
First step for US regulator to improve its bank loss forecasts would be to open up its models to public scrutiny, argue two banking industry advocates