Last week’s Barclay’s Bank scandal in the UK has reminded us that the rot goes deeper and further than we think. It appears that incompetence, corruption and greed have been endemic in British banking and very possibly in many other countries.

For those of you that did not catch the story, Barclay’s Bank is presently being investigated for manipulating the London Interbank Exchange Rate, or Libor as it is called. A huge percentage of the world’s variable-rate investments are pegged to Libor. When Libor rates are high, it suggests that the banks’ confidence in each other is low, and high Libor rates are generally an indicator of shaky financial health among the banks. If the banks manipulated Libor, they did it to make themselves look healthier, but this had the consequence of affecting hundreds of trillions of dollars’ worth of financial products worldwide.

We are learning with incredulity the laxity of controls over critical tools used to manipulate the financial markets. It is incredible that a microscopic modification of 0.01 per cent in an inter-bank interest rate can net a couple of million dollars for pin-striped hustlers – selfish bankers must not be allowed to run amok.

The answers may be troubling for those of us who believe in the essential strength of the free market and the power of capitalism to change lives, since clearly many people can’t be trusted to behave honourably when vast sums are at stake.

IMMORAL

The bonus-driven mis-selling of complex financial derivatives, debentures and bonds is highly immoral and bankers need to be made aware of the consequences to many families and businesses when these instruments fail.

We need effective regulation of these corporate behemoths — together with enforced transparency of their dealings and as much scrutiny as possible from strong independent watchdogs and an unshackled media.

Flipping the coin to a more moral banking model, we can check out Germany, where highly efficient, locally based, non-profit Sparkassen do what banks are supposed to do: safely channel our savings into productive investment.

MARFIN LAIKI BANK – THE LOCAL CYPRIOT FAILURE

Recently, Marfin Laiki Bank in Cyprus dropped a bomb shell on its investors who were encouraged to take out debentures for a 7% interest return. There were a total of 800 million euros of these debentures that were “sold” to anyone who could put down a minimum of 50,000 euros or more. Continue reading →

Panikos Politis,
Manager, Lordou Vironos Branch,
Marfin Laiki Bank,
Larnaca 

30.06.2012

Dear Mr Politis, 

I am sending you this letter with comments, but as it is time to implement transparency for everyone’s sake, I have also published this letter on my blog as well as sending it to more than 10,000 of my newsletter subscribers in Cyprus.

After our meeting on Tuesday 26^th June 2012, when you summoned me to have a chat, I would like to express some thoughts on the crisis that is facing Marfin Laiki Bank and the consequences that this is having on its customers as well as society as a whole.

It is clear from the decisions made by the Central Bank and the State that these are not in favour of the people – it is clearly a decision that was made to serve the Banks and the State.

This is highly immoral and dishonourable and has brought much distrust of the banking system as a whole, as well as the State. This distrust will spread like a virus to the detriment of the banking system, which may not be a bad thing in itself as the corrupt system needs to change as soon as possible.

Many people like me have worked a life-time to save some money for their children – I have four children myself, with two at university. We entrusted the bank with this hard-earned cash in order to obtain a good interest rate to pay for our children’s education.

Cutting the interest rates with a knife has now resulted in my elder children not being able to complete their education – this is not a situation that the average Cypriot parent wants to be facing – it is very personal and hits hard where it hurts!

Moreover, given that you have ‘locked-in’ my funds indefinitely until the banking system makes a recovery, this also directly affects my other two teenage children who will also want to study and require funds for doing so.

I am not certain whether the people “at top” making these decisions are aware of these consequences, or whether they really care? Continue reading →

I received a phone call from the manager of my local Marfin Laiki Bank in Larnaca, Cyprus  today asking me to visit him as early as possible.

I drove there early morning only to be confronted with a morbid atmosphere as if someone important had died.

The manager wanted to talk to me about a Debenture, similar to a Bond,  that I had invested with the bank in 2010. This was a sizable sum which amounted to over 25 years of hard work here in Cyprus, and the interest was to help my 4 children attend university, as well as help with their extracurricular activities.

Debt and More Debt!
Apparently, as Marfin Laiki Bank are in dire financial trouble, after some bad investments in Greece to the tune of 2 billion euros or more, the Central Bank, in order to help “the bank” decided to stop paying my interest, stat!

All told, Cypriot banks have outstanding loans or other money at risk totalling €152 billion, or eight times the size of the country’s gross domestic product, according to the International Monetary Fund. It is the same kind of extreme vulnerability to financial shocks that devastated Ireland.

Greece, because of its proximity to Cyprus and a common language, had seemed a logical place for Cypriot banks to expand by extending loans to Greek businesses and consumers and loading up on Greek government debt.

Cyprus Popular amassed €3.4 billion in Greek bonds, according to data from the European Banking Authority. Continue reading →