In a world where traditional financial institutions are quick to point fingers at the crypto industry for its alleged association with hacks and frauds, a deeper dive into their own closets reveals a laundry list of violations and misconduct. From fraud and money laundering to unfair practices and data protection breaches, the very institutions that criticize cryptocurrencies are far from squeaky clean.
I feel dirty after wading through the traditional banking swamp. The Violation Tracker, an extensive database tracking corporate misconduct, paints a grim picture of the banking sector’s ethical track record. Since the turn of the millennium, the financial services industry has amassed a staggering total of $380,015,282,562 in penalties, with a jaw-dropping 7,409 recorded violations. Read that again. $380 billion in penalties! Among the regulatory agencies wielding the hammer of justice, the Federal Reserve is one of the prominent entities penalizing these banks.
Wells Fargo, a name I have often seen involved in scandals, finds itself in the spotlight once again. Wells Fargo’s infamous $3 billion fine in 2020, stemming from the creation of fake customer accounts, serves as a stark reminder of the ethical quagmires traditional banks often find themselves in. In 2023, the institution faces a hefty penalty of $67,762,500 for banking violations, demonstrating a troubling trend of recurring issues.
However, the real eye-opener lies in the cumulative penalties accrued over the years. Bank of America leads the pack with a staggering $39,786,134,256 in total penalties, while Wells Fargo trails closely behind at $4,091,194,886. These penalties span a range of offenses, including investor protection violations, banking infractions, and consumer protection breaches.
European banks with questionable practices
In fact, one of the banks that I use are just as dirty. Danske Bank A/S, the Danish institution embroiled in one of the largest money laundering scandals in history, faced a colossal penalty of $2,000,000,000 in 2022 for its money laundering violations. Meanwhile, EFG Bank European Financial Group SA and EFG Bank AG were slapped with a substantial fine of $29,988,000 for tax violations in 2015.
Swedbank Latvia AS also made headlines in 2023, receiving a $3,430,900 penalty from the Office of Foreign Assets Control (OFAC) for economic sanction violations. Moreover, Swedbank’s missteps didn’t end there, as the institution was handed an administrative fine of 850 million Swedish crowns ($81.52 million) due to a “lack of internal control” following a revamp of its IT systems in the previous year.
…and the swamp gets even deeper.
It’s not just about violations; traditional banks have a history tainted by bank runs. One of the primary reasons banks are susceptible to bank runs is the system of fractional reserve banking. This system involves lending out more money than they have on hand, with the expectation that not all customers will want to withdraw their funds simultaneously. While this approach can be profitable for banks, it also exposes them to significant risk if too many customers try to withdraw their funds at once. This is where I get angry as well. Traditional finance is quick in pointing fingers at the crypto industry for commingling funds but they themselves do shitty investments with our money.
No wonder bank runs are not just theoretical concepts; they’ve occurred frequently throughout history. One of the most infamous bank runs happened during the Great Depression in the United States when over 4,000 banks failed, and depositors lost their savings. This panic was triggered by a combination of factors, including a stock market crash, a wave of bank failures, and a general loss of confidence in the banking system.
These incidents, involving traditional banks across the globe, including Sweden, China, Bulgaria, Canada, the United Kingdom, and the Czech Republic, demonstrate that bank runs are not just a problem in the crypto world. It’s a long-standing issue that has affected traditional banking for centuries. For centuries.
In the ongoing debate over the legitimacy and security of cryptocurrencies, traditional banks must address their own skeletons in the closet. The Violation Tracker data speaks volumes, underscoring the need for a fair and balanced assessment of financial institutions’ integrity across the board. While the crypto industry may have its share of challenges, it’s clear that the traditional banking sector need to clear its murky water of questionable practices.