Banks are constantly under fire from Congress; they are also mistrusted by the American people. Some of the bad actor banks are causing the sullied reputation of all banks to further suffer.
Some banks seem to constantly get sued because of struggles between the interests of maximizing client’s funds and investors. Banking is an area of the economy that caused a massive meltdown of the economy when these same banks were buying and selling toxic home mortgage instruments that ended up being worthless.
We bailed these banks out it the past for sketchy business practices and I worry that we may be going down the same road of unethical business practices leading to another meltdown of the economy and lost jobs, lost homes and lost wealth.
Trust is one of the factors that has had to be rebuild after the Wall Street meltdown in 2008 leading to many banks taking a massive cash bailout to stabilize markets. A recent scandal involving the Bank of New York Mellon (BNYM) will further chip away at trust. The scandal will also cause many to worry that our bank system may be back on the road to bailouts if these trusted institutions are cutting corners and cheating customers.
On June 22, 2017, U.S. Education Loan Trust IV (USELT IV), LLC, an Issuer of Federal Family Education Loan Program (FFELP) loan-backed notes, sued the BNYM for negligent, reckless or willful mismanagement of a trust. This mismanagement was calculated to result in a loss of over $23 million. Yet again, the left can roll out the term “Banksters” because one bank is giving banks as a whole a black eye.
This is a complicated case but basically what happened was that BNYM paid out tens of millions that were not due to investors and misclassified the payments as interest to hide that from a client, the Trust. The bank miscalculated interest rates that resulted in overpayment to clients in a way that was willful and part of a scheme to get the investors more cash. This willful mismanagement resulted in two lawsuits by investors against BNYM and another entity.
When the bank was notified of this mistake, they refused to correct the problem. This is the same Bank of New York that was fined $38 Million for laundering $7 billion of Russian money. This bank was also involved in a foreign exchange controversy and fined $714 million and fined by U.K. regulators for negligence and mismanagement of trust funds.
In 2015—under circumstances seemingly similar to those surrounding the case of USELT IV—Britain’s financial regulator fined BNYM nearly $186.3 million for failing to comply with regulations that BNYM, as a “custody bank,” must keep client’s assets safe in the case the bank becomes insolvent. For its part, BNYM claims that it never faced financial difficulty during the period in question (November 2007 and mid-August 2013) and its client’s assets were thus never at risk. Nevertheless, risking what experts say could have been a Lehman Brothers-esque collapse raises serious concerns over the bank’s veracity.
This most recent lawsuit against the bank thus appears to suggest not isolated misconduct but a systematic pattern of dishonesty and cheating. Illegal—and often also incompetent—business practices appear to be the norm at BNYM. A favorable economic climate may have prevented BNYM from suffering the worst of what the free market deems on wayward businesses, but its unknowing clients—and ultimately the average American borrower—will continue to suffer unless the courts take appropriate action.