Citigroup Inc, the US’s third largest bank, has failed an annual stress test conducted by the Federal Reserve, which determines whether US banks can withstand a potential financial shock in the future.
Despite losing billions in 2011, bailed-out British banks, including Lloyds and RBS, continued to pay out millions in bonuses to its top executives. The government has also thus far refused to step in, while public pressure mounts on the executives and politicians. Why are big bonuses still a prevalent part of banking culture and is there really nothing we can do?
As the world continues to clamp down on untamed speculative finance, disagreements between nations, global banks and financial institutions are likely to intensify. At the same time, the financial sector, and its lobbyists, will be doing all they can to adulterate, block or water down any reforms. Can any of the reforms stick, or will they ultimately have the perverse effect of increasing, and not decreasing, financial instability?
As the 2008 financial crisis showed, a simple banking system based on collecting retail savings to fund the credit needs of borrowers has evolved into a highly complex – and global – supply chain. To restore trust and adapt to the growing needs of new markets, financial leaders must re-engineer it.
